Grain prices will likely again drive U.S. agriculture in 2013, according to several speakers at the recent Tennessee agriculture leadership forum,made possible by Farm Credit Mid-America.
Near record low stocks of soybeans and corn and wheat will keep demand for these grain products high and prices good for farmers through the 2013 season.
However, the news is not universally good for farmers. Livestock and dairy farmers will continue to be in a high stress economic situation due to continually increasing grain prices, economists contend.
Terry Barr, senior director for industry research for Co-Bank ACB, says the outlook for the U.S. economy as a whole is not nearly so rosy. He says the world economy is not getting better.
Barr says 60 percent of U.S. economic growth is determined by consumer spending. Debt, unemployment and political uncertainty will limit growth in these sectors in 2013.
To underline his point, Barr notes that while unemployment may be down to 7.8 percent, under-employment in the United States is still nearly 15 percent.
Home prices, he says, have increased by 1 to 1.5 percent per month over the past three months. However, nationwide home prices remain about 30 percent lower than the price levels of 2006.
Between June 2006 and July 2012 central banks worldwide have injected $6 trillion into the global economy. Countries like the United States, Great Britain, Japan and Switzerland have shouldered most of the load.
By early 2013, the United States will face yet another economic crossroad. The U.S. Congress will have to decide whether to raise the debt limit and whether to extend tax cuts.
“How Congress and the president face these issues will go a long way toward determining U.S. economic recovery,” Barr says.
What does a good and bad financial outlook mean for farmers, especially those in the Southeast, for the upcoming 2013 planting season?
Grain crops promising
Among the primary crops planted in the region, economists speaking at the Tennessee agricultural forum agreed that grain crops will likely remain a good crop for Southeastern growers, while traditional crops like cotton and peanuts may face a difficult time competing for acreage.
Though not considered by some to be a traditional southern crop, wheat acreage over the past few years has continued to climb, especially in the upper Southeast.
Among the Southeastern states North Carolina is by far the largest wheat producer. In the Tar Heel state alone it is estimated that nearly 1,000,000 acres of wheat will be planted this fall.
From 2010 until 2012 in the United States, wheat prices have increased by 42 percent and use for livestock feed has increased an astounding 238 percent. In grain deficit Southeastern states wheat growers are rapidly cutting into the shortfall of grain for use as livestock feed.
During the same time, U.S. wheat exports were down by 11 percent and food and seed use was up 3 percent. The small increase in food and seed use was driven primarily by an increase in demand for wheat seed.
Wheat acreage for the 2012-2013 growing season in the Southeast is likely to be driven by continued high prices. The latest USDA estimates are for continued good wheat prices, likely in the $8-$9 per bushel range.
Uncertainties over the U.S. corn crop in 2012 are dominating world markets, according to Barr. He notes that U.S. corn yields declined for the third year in a row in 2012.
In June of 2012, the USDA estimated corn yields would be 163 bushels per acre. Following one of the worst droughts in history in the Midwest that yield estimate is now down to 122 bushels per acre.
Small yield increases in corn in most Southeastern states had little impact on total corn production in the U.S.
Production declines over the past three years have driven domestic use for corn down from 13 billion bushels in 2010 down to an estimated 11 billion bushels in 2012. Use is projected to continue to decline in 2013.
In 2012 corn stocks were at their lowest levels since 1995. In the past year corn used for ethanol in the U.S. is down 25 percent, feed use is down 9 percent and corn exports are down 25 percent. During that same time, corn prices have increased by 26 percent.
Whether soybean acreage in the Southeast is being driven by wheat or vice versa is open for debate.
Regardless of the driver, soybean acreage across the region was up in 2012 and appears certain to be up again for the 2013 planting season.
North Carolina a measuring stick
Again, using North Carolina as a measuring stick, soybean acreage in North Carolina in 2012 is projected to be more than 1.43 million acres.
For the 2013 season, acreage is expected to increase to more than 1.5 million acres.
Charles Hall, executive director of the North Carolina soybean growers Association, says optimism is high for the 2013 crop. He says extremely hot weather during part of the growing season in 2012, combined with the ideal moisture across most of the state, is proving to be a trade-off on yield, which will likely end up somewhere in the 30 bushel per acre range.
Barr says the soybean market is riding on a smaller South American crop and on U.S. production concerns for the drought stricken 2012 crop.
Since 2006 world soybean stocks are down 12 percent. More alarmingly, exports from major soybean exporters like Argentina, Brazil, Paraguay and the U.S. are down an average of 35 percent.
Most economists agree this continued decline in soybean stocks worldwide should mean extended good prices.
Brazil and Argentina had a sharp increase (29 million metric tons) in soybean production in 2012 and U.S. production is expected to have a slight decrease.
Worldwide, soybean production is expected to increase by 11 percent for the 2012 production season, but demand will more than offset a one-year increase.
In the United States strong demand will absorb the smaller than expected crop, pushing stocks lower and domestic demand higher.
Whether the price of 2012 beans goes up or down will be driven by purchases made in South America and China, according to Barr. He says prices may be up or may be down, but almost assuredly will be high.
Declining soybean stocks will push soybean meal prices even higher, Barr says. Soy meal prices already are already up 45 percent over the past two years, he adds.
These high prices are already impacting livestock production in the Southeast and will continue to do so into the next year, the economist says.
A larger than expected world cotton crop in 2012, plus reduced demand is pushing cotton stocks up worldwide.
A significant reduction in cotton acreage in the U.S. as a whole and in the Delta and Southeast in particular, has not significantly affected global cotton supplies.
Southeast acreage down
Cotton acreage in the Southeast in 2012 was down in virtually every state and significantly down in some states.
North Carolina, for example, had a decrease of about 180,000 acres last year. While the acreage cuts were not nearly so severe in some states the overall impact was a significant decrease in cotton acreage across the Southeast as a region.
Projections for acreage in 2013 vary dramatically from one source to another. Some cotton insiders say they expect similar drops across the cotton belt for the coming year.
Among the Southeast’s traditional crops peanuts may have the bleakest outlook of them all. Price expectations led to increased acreage throughout the Southeast in 2012. However, much of the peanut crop was planted without the benefit of firm contracts.
In Georgia alone, it’s estimated that more than half the crop was planted without a contract.
Tyron Spearman, peanut industry observer, says too many farmers saw too many dollar signs. The end result, he says, is exactly what we expected — too many peanuts.
Domestically and worldwide, demand for peanuts remains good. Despite that, over-production will likely keep prices low for the 2012 crop and likely into the 2013 growing season. The end result will likely be a significant decrease in peanut acreage for the upcoming year.
While high grain prices have been a boon for some farmers, the corresponding high price for livestock feed has been devastating for many.
For example, beef cattle numbers are at their lowest level since 1952 and production is near historic lows (22.5 billion pounds).
The economic news is not all bad for livestock producers, at least for those able to stay in the business. Beef prices over the past two years have risen by 53 percent and hog prices are up by 65 percent.
Despite the high prices, production is expected to fall 45 percent and pork and poultry production by 1-2 percent in 2013.