The USDA’s ag outlook through 2023

Feb. 18–The U.S. Department of Agriculture on Thursday released its annual long-term projections for the agriculture industry, with the forecast going out to 2023.

Below are some bullet points from the 93-page report:

High commodity prices led to record values of U.S. agricultural exports and U.S. net farm income in 2013. Projected reductions in prices for most major crops over the next several years will result in declines in export values and farm cash receipts through 2016. While net farm income is projected to stay below the 2013 record, it remains well above the average of the previous decade (2001-10).

Strengthening global food demand, a weak dollar, and continued biofuel demand, are major factors underlying projections of rising farm cash receipts beyond 2016.

With lower crop prices projected over the next several years, government payments to farmers initially rise sharply in 2015 and remain high in 2016 and 2017, mostly due to large payments under the ACRE program. However, government payments only average about $9.6 billion over the remainder of the projection period, compared to an average of $15 billion in 2001-10.

High crop prices in recent years made arable land more valuable, so rental rates for land in the Conservation Reserve Program rose. However, high crop prices also led to reduced CRP enrollment, so overall CRP payments have been fairly flat. Acreage enrolled in CRP is projected to decline to 26 million acres in 2014 before rising back to close to 32 million acres by the end of the projection period, with total CRP payments projected to rise from about $1.8 billion in 2014 to $2.75 billion in 2023.

Government payments will average less than 3 percent of gross cash income during the projection period (over 4 percent in the years of high-projected ACRE payments), compared to about 5.5 percent in 1981-2010. As a result, the sector relies more on the market for its income.

Total farm production expenses are projected to rise only moderately in 2014 and then fall in 2015 as declining crop prices lower feed costs and lower planted acreage and lower near-term crude oil prices reduce manufactured input expenses. Beyond 2015, production expenses rise less rapidly than the overall rate of inflation through 2023.

High commodity prices have pushed the value of U.S. agricultural exports to high levels the past several years, including a record $141 billion in 2013. With prices for many crops projected to fall in the initial years of the projections, export values decline through 2016. Agricultural export values are then projected to grow over the rest of the decade and surpass the 2013 record.

CATTLE

Despite improved returns for cow-calf operators in 2013, low cow inventories will limit recovery from recent drought conditions for several years. Lower beef cow inventories and expected heifer retention are expected to lead to declines in beef production through 2016.

Beyond 2016, beef production rises in the remainder of the projection period as returns support continued herd expansion.

Beef cow numbers rise from about 29 million head at the start of 2014 to over 33 million in 2022-23. The total cattle inventory drops below 88 million head at the start of 2014 before expanding to about 96 million in 2023. Rising slaughter weights also contribute to the longer term increases in beef production.

Beef cattle prices are projected to fall in 2017 and then to rise more moderately than in the early years of the projections as beef production increases.

Annual average consumption of red meats and poultry has fallen from over 221 pounds per capita in 2004-07 and is projected to be less than 203 pounds in 2014. But, as production increases, per capita consumption of red meats and poultry is projected to rise to about 215 pounds by 2023.

MILK

Milk production is projected to continue rising over the projection period. The long-term upward trend in output per cow continues, while milk cow numbers rise through 2017 and then fall.

Milk cow numbers are projected to rise through 2017 as high milk prices and lower feed costs provide favorable returns to producers. In later years, feed costs begin to rise and milk cow numbers show year-to-year declines in 2018-23.

U.S. milk output per cow is projected to increase through the projection period, reflecting continued technological and genetic developments.

Domestic commercial use of dairy products increases faster than the growth in U.S. population over the next decade.

After declining in 2014-16, nominal farm-level milk prices are projected to gradually rise over the rest of the projection period, with increases less than the overall rate of inflation. Real price decreases largely reflect efficiency gains in production, which result from technological improvements and consolidation in the sector. Even so, nominal milk prices exceed $20 per hundredweight in the last several years of the projections.

CROPS

Planted area for major field crops has been relatively high in recent years in response to high prices. As U.S. and global supplies rebound and prices decline for most crops, U.S. planted acreage for these crops is projected to fall over the next several years in response to lower producer returns.

Over the longer run, steady global economic growth provides a foundation for continuing strong crop demand.

Ethanol production in the United States is based almost entirely on corn as the feedstock. Only small growth is projected for corn-based ethanol production over the next 10 years.

Lower corn prices and increasing meat production underlie projected gains in feed and residual corn use. Also supporting gains in feed use of corn is a slowdown in the growth of production of distillers grains, a co-product of dry mill ethanol production, as the corn- based ethanol expansion moderates.

Corn prices are projected to decline through 2015/16, but then begin increasing in 2016/17 as ending stocks tighten due to growth in feed use, exports, and demand for corn by ethanol producers.

Following a small projected increase in 2014, wheat plantings are projected to decline over the following years, continuing a long-term general downward trend since the early 1980s. Relatively weak overall demand growth for wheat is projected.

Wheat prices decline through 2016/17, reflecting rising wheat stocks and falling corn prices. Wheat prices increase through the remainder of the projection period with export growth, moderate gains in food use, and declining stocks. Rising imports and increasing global competition limit price increases for wheat.

The two primary influences on the U.S. sugar market in the projections are continued low world sugar prices and large supplies of sugar in Mexico available for export to the United States. World sugar prices are projected to average 17.74 cents per pound between 2014/15 and 2019/20, levels that would not provide support for U.S. sugar sector. Beyond then, however, world sugar prices are projected to be higher.