US crop output, prices, food inflation all down in 2009

 

 

Output for major US crops and livestock will contract in 2009 as producers face weaker global demand, according to a report presented this week to the House and Senate agricultural committees.

 

The rate of food inflation will also slow to 2.7 percent versus the 5.5 percent high hit last year, said the Food and Agricultural Policy Research Institute, or Fapri, in its annual outlook presented to Congress. Fapri economists also noted that farm income levels will not return to 2008 levels before 2014.

 

"After a record-breaking year in 2008, in 2009 the drops in crop and livestock receipts outpace any lowering of production costs," said Pat Westhoff, Fapri co-director and crops economist at the University of Missouri-Columbia.

 

Corn prices at harvest this year are forecast to average US$3.74, Fapri said. Corn futures prices traded around US$8 per bushel last summer but dropped under US$4 by November.

 

With corn exports and feed use seen declining, corn for ethanol will continue to rise to meet mandates in the 2007 Energy Independence and Security Act. By 2017, Fapri projects more corn will go to fuel than will be fed directly to livestock.

 

Soy harvested in 2009 is also expected to experience a price decrease to an average of US$8.76, pressured by lower demand from poultry and livestock sectors, Fapri said. That would compare to last year's average of US$9.37.

 

US livestock industries are expected to drop production in an effort to drive up prices and offset higher production costs, the Fapri report noted.

 

Given lower global demand, soyoil prices are also predicted to slide and more products will be diverted into biodiesel. Biodiesel use will increase, but prices will slip on lower petroleum prices, and narrow margins will limit industry expansion, Fapri said in a news release summarizing the report findings.

 

Fapri models consider 500 random combinations of varying influences such as weather, exports and exchange rates. The model predicted corn prices will average about US$4 per bushel over the next decade, with about 80 percent of results ranging US$3 to US$5.

 

"There are many risks not captured by 500 runs," Westhoff said. "We've tried to capture the many sources of volatility, but it's safe to say markets will continue to find new ways to surprise us in years ahead."