Report: Normal corn yields in 2012 could lower returns after short supply boosted 2011 net farm income
The annual MU FAPRI baseline was presented March 5 to the U.S. Congress. The baseline, extending 10 years, provides a measure for analyzing proposed changes in farm policy.
Trend-line yield for 2011 season was 160 bushels per acre; however, actual production was 148 bushels.
“Crop prices would be a lot lower today if we had not had back-to-back years of below-trend corn yields,” Westhoff said.
FAPRI projects planted corn acres this year at 93.5 million acres, up from 91.9 million last year. An assumed normal yield in 2012 reduces per-bushel price to $4.81, down from $5.96 for 2011-2012 market year.
Ethanol production is projected to remain at 2011-2012 levels after years of rapid growth. An end of the 45 cents per gallon tax credit, high corn prices and constraints on ethanol used in conventional 10-percent blends contribute to slower growth.
Soybean prices for 2012 remain over $11 per bushel, after averaging an estimated $11.61 for 2011-2012. “Soybeans must remain strong to be competitive with corn for acreage,” Westhoff said.
“Given current tight corn supplies, markets will be sensitive to news about 2012 supply-and-demand prospects,” Westhoff said. “Prices could fall if favorable weather increases crop production.”
Even with good weather and higher yields, demand should stay strong enough to keep crop prices above pre-2007 levels, Westhoff said. “Weather remains the major variable, affecting grain production and livestock grazing.”
Volatility can be expected. “Many of the factors that caused recent price swings remain in flux,” Westhoff said.
Crop insurance accounts for a larger share of public support to farms than in the past, Westhoff said. High crop prices reduced expenditures on traditional farm programs.
The consumer price index for food rose 3.7 percent in 2011 and could grow a similar rate in 2012. However, in the following years of the baseline, food price growth follows general inflation rates.
Meats will show the highest inflation in 2012, as they did in 2011.
Beef cow numbers fell sharply in 2011, despite the highest cow-calf net return since 2005. Drought in major beef states kept ranchers from responding to demand signals.
Beef exports remain strong, particularly for high-quality beef, helping sustain prices.
The 2012 price of feeder steers, the most common product from Missouri herds, rises to $154 per hundredweight for 600- to 650-pound calves at Oklahoma City. That’s up from an average of $139 for 2011 and $102 in the recession year of 2009.
“While beef export growth since 2005 gained much media attention, the drop in imports in that period almost matched the export gains,” Westhoff said. “The relatively weak dollar and tight beef supplies worldwide place the U.S. in position to gain markets for the next decade.”
Corn and feedstuffs prices will affect feedlot profitability as they bid for a shrinking supply of calves. Domestic meat supply dropped an unprecedented 22 pounds per person between 2005 and 2011.
If feed prices moderate as projected, per capita meat availability should stabilize and then grow after 2013.
While farm income increased, production costs grew $36 billion, almost 12 percent, in 2011. Feed, fertilizer and fuel led increases. Feed should drop; however, fertilizer and fuel remain high.
The MU FAPRI baseline assumes normal weather and continuation of current farm polices. While the 2008 farm bill expires this year, analysts assume current law prevails through the 10 years, for comparison of policy alternatives.
Macroeconomics on interest rates and inflation are provided FAPRI by IHS Global Insight. Economists at the Agricultural and Food Policy Center, Texas A&M, provide the economic impact of the baseline on representative farms across the country.
The MU College of Agriculture, Food and Natural Resources supports MU FAPRI.
When delivered to Congress, the 64-page report will be posted on the Internet atwww.fapri.missouri.edu/.
—University of Missouri Cooperative Media