USDA’s Chief Economist Expects Exports, Yields Up; Feed Prices Down

ANALYSIS - Despite the historic drought, USDA chief economist Joseph Glauber said at the 2013 USDA Outlook Conference that US agricultural exports will have another record-breaking year and the financial outlook for the ag sector remains solid. However, he acknowledged there are differences between sectors, writes Sarah Mikesell, Senior Editor.
calendar icon 26 February 2013
clock icon 14 minute read

“Row crop producers have generally fared well despite the adverse weather, in large part due to higher prices and federal crop insurance programs which have helped offset yield losses,” Glauber said. “Livestock, dairy and poultry producers have experienced sharply higher feed costs, combined with poor pasture conditions, with limited safety net programs on which to fall back.”

His 2013 outlook calls for a rebound in crop yields resulting in record production levels for corn and soybeans, and by fall 2013, he expects lower prices for most grains and oilseeds.

“Lower crop prices should lead to lower feed costs and improved profitability for the livestock, dairy and poultry sectors,” he said.

Despite his bright outlook, Glauber acknowledged that there are many uncertainties.

Outlook for US Agricultural Exports

US agricultural exports for fiscal year (FY) 2013 are projected at $142 billion, down $3 billion from the November 2012 forecast, but $6.2 billion above FY 2012 levels and a record in nominal terms after adjusting for inflation.

Imports for FY 2013 are forecast at $112.5 billion, also a record. The agricultural trade balance for FY 2013 is forecast at $29.5 billion.

Exports to China are projected to be $22 billion, down $1.4 billion from last year’s record, but for the second straight year China has edged out Canada ($21 billion) as the number one market for US agricultural exports.

“US agricultural exports to China have grown, on average, almost 20 per cent annually since FY 2005,” Glauber said. “Soybeans and cotton have dominated US exports to China, accounting for as much as 75 per cent of total agricultural exports in recent years, although red meats, coarse grains, and feeds and fodder have all shown strong growth."

  • Soybean exports are projected to exceed $22 billion in FY 2012, a record level if realized.
  • Meat exports are projected up 1.3 percent with increased beef and veal and poultry exports offsetting a small decline in pork exports.
  • Dairy product exports are forecast down 3.3 per cent while exports of horticultural products are up almost 12 percent over FY 2012 levels.

Increases in export values for FY 2013 are being attributed to higher commodity prices because export volumes are expected to drop for many commodities. Only rice and wheat exports are projected to be higher in volume and value.

  • Soybean exports are projected to decline by almost 5 per cent in volume due to drought-reduced supplies.
  • Corn exports for FY 2013 are projected at just 24 million tons, down almost 38 percent from FY 2012 levels.
  • US corn exports are projected to be at their lowest levels since the early 1970s in volume.

In part due to record corn production, reduced domestic use and available export capacity, Brazil will likely overtake the US as the world’s largest corn exporter in FY 2013. While the US will likely regain its position as largest corn exporter in FY 2014, the low levels of exports reflects the severity of year’s drought.

Outlook for Crops

Global grain stocks are expected to tighten in 2012/13, while cotton stocks increase as China increases its public inventories.

“The droughts in North America, southern Europe and the Black Sea region sharply reduced wheat, corn, and soybean supplies,” he said. “Global wheat stocks for 2012/13 are projected to be at their lowest level as a per cent of use since 2008/09. Global corn stocks as a per cent of use are projected to be the lowest since 1973/74.”

Despite record production, strong demand has reduced global rice stocks, and soybeans stocks are anticipated to increase reflecting large anticipated production in the Southern Hemisphere, but stocks as a per cent of use will remain below 2010/11 levels, he said. Large global supplies should lead to stock rebuilding in 2013/14, but markets are expected to remain volatile until production levels are known with more certainty.

Global cotton stocks are projected for 2012/13 at 82 million bales, a record high and up 19 per cent from last year. The bulk of the increase has been in China where the government has been increasing their cotton stocks to bolster producer prices.

With China forecast to hold over 50 percent of world stocks, the world cotton outlook will depend on the sustainability of such policies over the longer run, Glauber noted.

High grain and oilseed prices will support another year of large plantings for wheat, corn and soybeans. Combined acreage for those crops topped 230 million acres in 2012 and will likely approach similar levels for 2013.

  • Conservation Reserve Program (CRP) enrollments are down again for 2013/14 to 27.1 million acres.
  • Total CRP area has declined 9.7 million acres from its peak in 2007/08.
  • Wheat seedings are projected at 56 million acres, up 300,000 from 2012.
  • Hard Red Winter (HRW) wheat area is down 0.7 million acres from 2012 due to the drought
  • The decline has been offset by increased seedings of Soft Red Winter (SRW) wheat, up 1.3 million acres from 2012 levels.
  • Spring wheat seedings (including durum) are projected to decline due to more profitable returns for corn and soybeans.
  • Expectations for more normal spring weather should result in more soybeans and slightly less corn being planted in 2013, he noted.
  • Corn planted acreage is projected at 96.5 million acres, down slightly from last year’s 75-year high. Soybean acreage is projected at 77.5 million acres which, if realized, would equal the record high level reached in 2009.
  • Increased SRW wheat seedings will likely increase double-cropping and reduced CRP area in the upper Midwest could further boost soybean area.
  • US upland cotton area for 2013 is projected at 9.8 million acres, a decline of 2.3 million acres from 2012, and reflects lower expected returns for cotton relative to alternative.
  • Similarly, a small decline in long grain rice area is expected in the Delta where expected returns to soybeans look more favorable for 2013.

Yields for spring-planted crops are projected to rebound from drought levels, but weather remains key. Forecasts point to continued dryness in the central and southern Great Plains.

Weighted by seeded area, the hard-red winter wheat states of Kansas, Nebraska, and Oklahoma have 50 per cent of their wheat crop rated in poor or very poor condition compared to just 10 per cent at this time last year. Spring rains will be especially important in the Great Plains this year where elevated levels of abandonment are expected.

Nationally, wheat production is projected to be 2.1 billion bushels, down 7.4 percent from 2012 levels, due to higher abandonment rates and a return to trend yield from last year’s record level. Rice and cotton production are also forecast lower, largely reflecting lower planted area and a return to trend yields.

Effect of Drought on 2013 Yields

A number of factors suggest that corn and soybean yields will likely return to trend.

“We have already seen some improvement in the eastern Corn Belt,” he said. “While much of Indiana and Illinois was in drought throughout much of the summer, fall and winter rainfall has improved conditions there.”

Studies suggest that there is little correlation between seasonal precipitation in one year and the next. Research shows that corn and soybean yields are largely determined by summer weather conditions, with July weather being the most important. So Glauber concluded that there is little evidence to suggest that low preseason moisture levels will have significant impacts on corn and soybean yields.

Blend Wall Constrains Corn Use for Ethanol

From 2005/06 to 2010/11, corn use for ethanol in the United States grew by over 680 million bushels annually, topping 5 billion bushels in 2010/11 and 2011/12.

“With higher corn prices due to the drought, ethanol production margins tightened considerably this past summer,” he said. “As a result, weekly production numbers fell below the allowable cap for conventional ethanol under the Renewable Fuel Standard and have remained below the cap since mid-July."

Projected corn use for ethanol has been reduced for the 2012/13 marketing year to 4.5 billion bushels. A record corn crop for 2013/14 should improve ethanol production margins and lead to increased ethanol production.

Corn use for ethanol is projected at 4.675 billion bushels for 2013/14, up 175 million bushels from last year, but below 2011/12 levels.

Glauber said several factors will likely hinder further growth in corn use for ethanol over the next few years.

“One, US gasoline consumption has been declining since 2008. At the time the Energy Act of 2007 was passed, forecasts by the Energy Information Administration for gasoline consumption implied almost 150 billion gallons of blended gasoline by 2014,” he said. “Increased fuel efficiency and fewer miles driven due to the slow economic recovery have caused gasoline consumption to decline.”

Current EIA forecasts of blended gasoline fuel consumption in 2013 are less than 134 billion gallons, 16 billion less than forecasts made in 2008. Also, ethanol penetration rates remain near 10 per cent as growth in higher blends (E15 and E85) remains limited. Current penetration rates would imply a blend wall of less than 13.4 billion gallons for ethanol. Ethanol produced in excess of that amount must be held as stocks or exported.

Lastly, he said, while export markets have provided an outlet in past years for excess ethanol production, current export prospects are reduced because of increased competition from Brazil and potential trade restrictions for exports to the European Union.

Prices for Grains, Oilseeds to Fall in 2013/14

Farm prices for most grain and oilseeds will be lower, reflecting larger domestic and world supplies. A return to trend yields will likely push corn prices down significantly as stock levels rebuild.

“Corn prices are forecast to average $4.80 per bushel in 2013/14, down 33 per cent from 2012/13’s record levels and, if realized, the lowest average price since the 2009/10 marketing year,” he said. “Likewise, larger supplies and increased carryout will weaken soybean prices to $10.50 per bushel, down 27 per cent.”

Cotton prices are expected to increase by 3 per cent to 73 cents per pound for 2013/14, reflecting tighter domestic supplies. Rice prices are projected at $15.20 per cwt, up 30 cents from the midpoint of 2012/13’s price, in part reflecting smaller domestic supplies and ending stocks.

Outlook for Livestock, Dairy and Poultry

Livestock, dairy and poultry producers faced high feed costs for most of 2012 and high prices are likely to persist through much of 2013 until new crops become available in the fall, Glauber noted.

“Feed ratios, which have generally been tight since 2007, tightened further in 2012 as feed costs rose relative to meat and dairy prices,” he said. “While productivity gains have offset some of the decline in feed ratios, margins have been tight throughout the second half of 2012 and into 2013.”

Cattle producers have been particularly hard hit by poor pasture conditions and a poor hay crop. Almost two-thirds of US pasture and hay crops were in drought conditions with almost 60 per cent of pasture condition rated poor or very poor for most of July, August and September 2012.

Dryness in the Southern Plains has persisted for over two years and resulted in large liquidation in cattle numbers. The January 1 NASS Cattle report indicates that most of the decline in the US cattle herd has been in the central and southern Plains. Cattle and calf numbers in Kansas, Oklahoma and Texas declined by 3.4 million head between 2011 and 2013, a reduction of 13.6 per cent. During the same period, the U.S. cattle herd declined about 3.6 per cent. The US cattle and calf herd is at its lowest level since 1952.

“Likewise dairy producers were adversely affected by high feed costs and poor pasture conditions. High temperatures during the summer also adversely affected milk production,” he said. “As a result of high feed costs, milk feed ratios have remained near the low levels experienced during 2009.”

Strong pork and broiler exports helped keep margins higher than they would have been otherwise, but high feed costs have limited hog, poultry and dairy expansion. Prices for livestock, dairy and poultry products are all forecast up in 2013 (figure 19). However, the livestock, dairy and poultry sectors face continued tight margins in 2013, at least until new crop feed grains and soybeans reach the market in the late summer and fall. Another year of below trend yields and high prices would likely result in further liquidation.

Outlook for Food Prices

Higher crop and livestock prices will drive consumer prices higher in 2013 but the increase should be small relative to increases in recent years. Food inflation is currently low. Food-at-home prices rose 1.3 percent over the same period.

“USDA forecasts that food prices will increase only between 3 to 4 percent in 2013,” he said. “Inflation is expected to remain strong, especially in the first half of 2013, for most animal-based food products due to higher feed prices. Food inflation is expected to be above the historical average for categories such as cereals and bakery products as well as other foods.”

Farm Income

USDA’s Economic Research Service (ERS) recently released its revised farm income forecast for 2012 as well as its first forecast of farm income for 2013.

For 2012, net cash income is forecast at $135.6 billion, a record in nominal terms and, the highest since 1973, adjusting for inflation.

  • Farm cash receipts are forecast at $391 billion, up $17 billion over 2011 levels.
  • Crop receipts are estimated at $220 billion, up 5.4 per cent over 2011, while livestock receipts are up 3.4 per cent to $172 billion.
  • Total expenditures are up as well, with feed costs forecast to rise 16.6 per cent to $64 billion reflecting higher grain and oilseed prices.
  • Other farm income, which includes crop insurance indemnities covering the 2011 and 2012 crop years, is forecast to be $31.3 billion in 2012, up 20 percent over 2011 levels.
  • For 2013, ERS projects net cash income to be $123.5 billion, a decline of almost 9 per cent.
  • Total cash receipts are forecast at $393 billion, up marginally from 2012.
  • Crop receipts are forecast to decline 1.5 per cent from 2012 levels to $216 billion while livestock receipts are forecast to increase 2.8 percent from 2012 levels to $177 billion.

Feed costs are expected to increase by $4 billion to almost $68 billion. Other large increases in production expenses are forecast to be rental expenses, up $1.7 billion and labor costs, up almost $3 billion.

“While net cash income is projected to fall in 2013, net farm income is forecast at $128 billion, a nominal record and, if realized, would be the highest level in real terms since 1973,” he said. “The increase in net farm income in 2013 reflects projected increases in farm inventories in 2013 due to the expectation of trend yields and increased crop production. “

ERS forecasts that average farm business income, after rising in 2012, will fall for most row crop producers in 2013. Higher production expenses will likely offset record farm cash receipts. Net cash income is forecast lower in 2013 for all livestock farm businesses due to higher feed costs. Feed costs are forecast up 6 per cent for 2013 and make up 51 per cent of expenses for dairy, 19 per cent for beef cattle, 42 per cent for hogs, and 35 per cent for poultry farm businesses.

Farm equity is forecast to increase to record levels in 2012 and 2013.

  • The farm debt-to-asset ratio for 2013 is forecast at 10.2 percent.
  • Farm assets in 2013 are forecast at a record high $2.732 trillion, a record high in both nominal and real terms.
  • Farm real estate is forecast at $2.35 trillion, up 7.5 percent over 2012 levels (and up 15.7 percent over 2011 levels).
  • Real estate debt is forecast to decline by $3 billion (2 percent) in 2013 but this decline will likely be offset by increases in non-real estate debt which is forecast to increase by almost $12 billion from 2012 levels.


High prices ahead of planting should encourage large corn and soybean acreages, and assuming normal yields, stock levels should rebuild and prices should moderate in 2013/14, Glauber said. Lower feed costs will bring relief to livestock, dairy and poultry producers and allow modest expansion over the next 12 months.

“A key uncertainty is whether the historic drought of 2012 persists through 2013. Another year of drought would likely result in large liquidation and hardship for livestock producers. Historical odds favor a rebound in crop yields, however, which should bring significantly lower prices in 2013,” Glauber concluded.

Sarah Mikesell


Sarah Mikesell grew up on a five-generation family farming operation in Ohio, USA, where her family still farms. She feels extraordinarily lucky to get to do what she loves - write about livestock and crop agriculture. You can find her on Twitter or LinkedIn.

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