Market Perspectives February 21, 2014

Outlook: USDA conducted their annual Outlook Conference this week and updated their long-term 10 year projections. These extended projections are not forecasts because USDA assumes consistent trends and normal conditions, but these projections can be useful in providing an initial foundation to perform more elaborate what-if analysis. It should also be noted that these predictions were not readjusted to make amends for the latest Farm Bill (Agricultural Act of 2014). Having made that distinction, the following is a summary of some of the key points that are predicted as the most likely scenario under conditions of normalcy:

– The world coarse grain trade is projected to increase 25 percent from 2014 to 2023 due to expanded livestock production in feed-deficit regions such as China, Mexico, Africa and the Middle East. The result is that U.S. corn exports are expected to rebound from the recent weather related shortfalls of the past few seasons. However, the percent of total U.S. corn being exported is predicted to level off at about 40 percent.
– The global barley trade is expected to increase about 14 percent during the next decade with Saudi Arabia remaining the leading importer.
– The international sorghum trade is predicted to remain nearly flat over the next 10 years.
– The increased food consumption and feed use over the next decade will be largely facilitated by steady economic growth in developing countries.
– U.S. corn use for ethanol production is expected to plateau at about 35 percent of total production as economic growth is expected to support global demand for biofuels. (Please see related discussion in the ethanol section.)
– A modest appreciation in the U.S. dollar is expected in the next decade from current levels but the dollar is to remain at lower levels than occurred in the past two decades. The dollar below historical levels is anticipated to help keep U.S. feed grains attractive to global buyers.
– U.S. corn prices are projected to modestly decline into the 2015/16 season under assumption of increasing trend yields and normal weather, before again trending higher due to growing global demand.
– U.S. corn planted acreage is predicted to decline and level off at about 88.5 million acres as corn yields are predicted to increase from 165.6 bushels per acre in 2014/15 to 183.6 bushels per acre in 2023/24. U.S. sorghum planted acreage is expected to level off at about 5.8 million acres with yields that flatten out around 65.1 bushels per acre. U.S. barley planted acreage is expected to level off at 2.9 million acres with yields that slowly increase from 70 bushels in 2014/15 to 75.7 bushels per acre in 2023/24.
– A key point is that USDA’s prediction is that the future looks favorable under the scenario of expected normal conditions. Throughout the next decade, U.S. feed grain prices are predicted to remain below the high prices of the past two years but increasing global feed consumption, a relatively low value for the U.S. dollar, and consistent demand for biofuels are anticipated to combine in keeping U.S. feed grain price above pre-2007 levels.