A lot of new information and forecasts have become available in the last few weeks. USDA has updated forecasts of crop sector supply and demand for 2012/13 and forecasts for farm income. The semi-annual Cattle inventory report was also released, showing another decline in the sector which will influence livestock markets for at least the next year or two. There was a big report from USDA analyzing the outlook for Kazakhstan, Russia and Ukraine with forecasts out through 2021. The Congressional Budget Office released their initial 10 year baseline report for agriculture and USDA released their projections through 2022. These data and forecasts provide some interesting perspectives on the future for agriculture over the next several years.
USDA’s Agricultural Projections Through 2023
We start this discussion with some of the highlights from USDA’s annual 10 year forecast. Every year USDA releases a 10-year forecast ahead of their annual Outlook Conference that takes place in late February. For the outlook conference USDA may update some of the near-term numbers, but the longer term outlook generally remains as the background for agriculture. For this analysis, we look at both the near term and the long term projections included in the report.
USDA is forecasting a modest decline in corn acreage for 2013. Corn acreage falls to 96 million acres down a little more than 1 million acres from the actual level reported for 2012. U.S. corn acreage has increased pretty dramatically in the last decade as ethanol production increased, significantly boosting demand for corn. A decade ago, corn acreage typically totaled less than 80 million acres compared to the current 96 million to 97 million acres. It takes about 25 million acres to produce the additional 4 billion bushels of corn now used for ethanol production. That accounts for the change in corn acreage over the last decade.
But the expansion in the ethanol industry is probably mostly behind us. Production of ethanol has been declining recently but the total for 2012 was around 13.3 billion gallons. The mandate tops out at 15 billion gallons in 2015. That suggests an increase in corn use of about 630 million gallons over the next 3 years. In fact, USDA’s long term forecast has the amount of corn used for ethanol below 5 billion bushels until the 2019/20 season, a level already exceeded in 2010/11 and 2011/12. Unless there is another good source of demand growth, further increase in corn acreage are unlikely.