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Where are Commodity Prices Headed in the Next CBO Baseline?

A recent article in Southern Ag Today highlighted that increasing marketing year average prices over the past few years likely will lead to increasing “Effective Reference Prices” for many crops. The article further noted that if those increased Effective Reference Prices were realized, “then the cost of increasing reference prices for all commodities should be significantly lower when cost estimates are developed during farm bill discussions.”

The analysis in the earlier article was based on the Congressional Budget Office’s (CBO) May 2022 baseline projections.^[1] The biggest question at this point: where are commodity prices headed in the next CBO baseline? To help answer this question, we look to the U.S. Department of Agriculture’s (USDA) most recent long-term outlook released on November 7, 2022.^[2]

As noted in Table 1, commodity prices in USDA’s latest long-term price outlook have increased significantly relative to CBO’s May 2022 projections. Significant increases in the near term will bolster Effective Reference Prices, and generally speaking, those increases persist throughout the entire baseline period. For example, USDA is projecting corn prices to average $4.30/bu in 2032, a $0.50/bu increase over CBO’s $3.80/bu estimate for 2032 in May 2022. Figure 1 explores the same data as percentage increases. For example, the marketing year average prices for corn, cotton, and wheat are all expected to be at least 10 percent higher in 2032 than projected by CBO in May 2022.

Bottom line: the upcoming baseline projections will likely reinforce the point made in the earlier Southern Ag Today article, with higher prices continuing to reduce the cost estimates for raising reference prices in the next farm bill.

Table 1. Dollar Change in Marketing Year Average Price Projections, USDA November 2022 versus CBO May 2022.

	Units	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032
Corn	$/bu	1.25	0.80	0.55	0.45	0.45	0.35	0.30	0.35	0.40	0.50
Cotton	$/lb	0.06	0.05	0.04	0.05	0.06	0.07	0.09	0.10	0.12	0.11
Soybeans	$/bu	2.50	1.20	0.75	0.45	0.25	0.30	0.30	0.30	0.30	0.30
Wheat	$/bu	1.65	1.60	0.75	0.45	0.50	0.50	0.50	0.55	0.55	0.60

Figure 1. Percent Change in Marketing Year Average Price Projections, USDA November 2022 versus CBO May 2022.

^[1] https://www.cbo.gov/data/baseline-projections-selected-programs

^[2] https://www.usda.gov/oce/commodity-markets/baseline

Author: Bart Fischer

Research Assistant Professor

Co-Director Agricultural & Food Policy Center at Texas A&M University

Bart.Fischer@ag.tamu.edu

Fischer, Bart. “Where are Commodity Prices Headed in the next CBO Baseline?” Southern Ag Today 2(52.4). December 22, 2022. Permalink

December 22, 2022

Will Hemp Production Fare Any Better in 2023?

The acres of hemp production in the United States have been on the decline since its most recent peak production of over 200,000 acres in 2019. By 2021 the acreage had shrunk to 54,000 acres, and in 2022 the production is under 37,000 acres. However, there is some light at the end of the tunnel for this crop. Over the last two years, acreage has shifted from floral production to grain and fiber production. This trend is expected to continue into 2023 as processing capacity and markets begin to emerge. There is also some good news for the hemp floral production segment, with existing stocks of hemp crude oil and floral biomass having degraded to a point of minimal economic value. For hemp to maintain current acreages and potentially increase acres in 2023, there will need to be a continued investment in genetic improvement, infrastructure development, and market research.

Awards through the most recent rounds of Climate Smart Agricultural funding will help to propel research and production of this crop. In addition to research investment, there continue to be significant announcements of additional fiber and grain processing facilities across the United States. In 2023, Farm Bill hearings will continue, providing the next major opportunity to further develop the regulatory framework for the hemp industry. This will be a pivotal point in the development of the hemp industry and will set the course for its continued growth. Lastly, we are watching 2023 for increasing demand and access to international markets which will be key for the industry’s development and long-term growth potential.

There are also some bright spots from a profitability standpoint for the grain and fiber sectors. With additional increases in grain and fiber demands and rising prices, these products are becoming more competitive with traditional commodities. However, producers considering the production of hemp in 2023 need to proceed with caution and carefully evaluate the profit potential for their individual operations. Enterprise budgets that can be used to assist in evaluating the profit potential can be found on the University of Kentucky Industrial Hemp Agronomic Research webpage. Additionally, make sure to involve a lawyer in the evaluation of the hemp production contract to ensure it provides the relevant risk management protections for your operations. A contract checklist can be found at the University of Maryland.

Author: Tyler Mark

Associate Professor

tyler.mark@uky.edu

Mark, Tyler. “Will Hemp Production Fair Any Better in 2023?” Southern Ag Today 2(52.3). December 21, 2022. Permalink

December 21, 2022
Retail Meat Prices Finally Decline

Retail meat prices have increased to record high levels over the last year and a half, like many other items.  But, unlike other goods, beef, pork, and chicken prices have some unique market characteristics affecting their prices.  This SAT article examines retail beef, pork, and chicken prices that are part of the monthly Consumer Price Index (CPI).

Retail pork prices really began to increase in March 2021.  Since then pork prices have increased from $4.17 per pound to $5.05 in October 2022.  The latest CPI report, issued last week, reported retail pork prices in November at $4.95 per pound.  For the first time this year, the retail price was below the prior month.  The average pork price remains above last year, however.  High feed costs, disease issues, and a lack of hog producer profits have kept pork production below a year ago.  Wholesale prices, as measured by the pork cutout value have, generally, been below 2021 most of the year.

Retail chicken prices have declined for the last 2 months since hitting a high of $1.89 in September. November’s average price was $1.84 per pound well above the $1.58 of last November and the 5-year average November price of $1.50.  High wholesale chicken cut prices led to increased production earlier this year and now wholesale prices are at or below the five-year average.

Like pork prices, retail average Choice beef prices began to increase in March 2021.  They increased from $6.48 in March to a record $7.90 in October 2021.  Since then, retail Choice beef prices have been flat to slowly declining, falling to $7.37 in November.  In contrast to pork and chicken, beef prices have been lower than last year since August.  Drought has forced herd culling which has kept beef production higher than in 2021.  The Choice boxed beef cutout has been lower than in 2021 most of the year.

Monthly average retail meat prices have been slow to respond to lower wholesale prices this year.  Several months of declining beef prices have made beef relatively less expensive than other meats.  Falling wholesale prices will allow some room for retail prices to decline further in 2023.  The effect of higher interest rates and tightening budgets for many consumers may change consumer purchasing patterns and allow for further retail price declines in the new year.

Merry Christmas from all of us livestock economists at Southern Ag Today!

Author: David Anderson

Professor and Extension Economist Livestock and Food Products Marketing, Dairy, Policy

danderson@tamu.edu

Anderson, David . “Retail Meat Prices Finally Decline.” Southern Ag Today 2(52.2). December 20, 2022. Permalink

December 20, 2022
What to Expect from Brazil’s Soybean Crop?

As the soybean harvest ends in the United States, it is time for the markets to look to the Southern Hemisphere. Brazil is currently the top soybean producer and exporter in the world and, thus, a significant competitor of the United States in the global export market. Since Brazil is in the Southern Hemisphere, the soybean growing season is opposite that of the United States. In general, soybean planting occurs from October to December, followed by a growth stage in January and February, and harvest in March through June. The timing of production will vary by region. The four largest contributors to soybean production in Brazil are Mato Grosso (28%), Parana (19%), Rio Grande do Sul (14%), and Goias (10%). The development of the Brazilian soybean crop over the coming months will influence any potential spring price rallies.

Brazil is projected to produce a record 5.58 billion bushels of soybeans (Figure 1), which is 9% higher than their current record from 2020/21. Last year’s soybean crop was initially expected to result in record production, but dry conditions ultimately dampened production to 4.67 billion bushels. Planting was able to start earlier than normal this year, and Brazil is projected to plant 105.8 million acres. Growing conditions currently appear better than last year, with most major growing areas in Brazil receiving adequate rainfall. There is some concern about dry and hot weather in the south of Brazil that could impact production if it continues. Brazilian yield is projected at 52.6 bushels per acre compared to the U.S. yield of 50.2 bushels per acre.

Since 2012, Brazil has consistently been the largest soybean exporter overtaking the United States. Brazil has, on average, accounted for 51% of world soybean exports over the last five years, and the U.S. averaged 35% of world exports over the same period. In 2022/23, Brazil is projected to export a record 3.29 billion bushels. This projection is based on a sizeable available supply and a favorable exchange rate for the Brazilian real. Brazil is also projected to have a record-high domestic crush of 1.90 billion bushels driven by ample supplies and high demand for soybean products.

Weather over the coming months will be critical to Brazil meeting these record production and export projections. As seen last spring, soybean markets responded to production difficulties in Brazil with a price rally through January and February. World soybean ending stocks were at a six-year low coming out of the 2021/22 crop year. With strong global soybean demand, the development of dry conditions in Brazil could lead to a strong rally this spring. On the other hand, if record production is achieved U.S. prices are likely to fall. U.S. producers must keep an eye on Brazil and be prepared to take advantage of marketing opportunities.

Figure 1. Brazil Soybean Production, Exports, Crush, and Ending Stocks: 2000-2022

Source: USDA Foreign Agricultural Service
* 2022/23 Projections

Author: William E. Maples

Assistant Professor and Extension Economist

Department of Agricultural Economics

Mississippi State University

will.maples@msstate.edu

Maples, William E.. “What to Expect from Brazil’s Soybean Crop?” Southern Ag Today 2(52.1). December 19, 2022. Permalink

December 19, 2022
How to Create a Marketing Plan in the Digital Era

Marketing can feel like a mystery to farmers who are focused on growing their products, responding to changes in weather, and the day-to-day demands of managing a farm. Even more challenging is the fact that marketing has changed dramatically over the last decade. Previously, farmers had two primary marketing channels, packing houses or roadside stands. There are now new sales venues from community supported agriculture, farmers’ markets, direct contracts with the hospitality and retail industries, and online sales platforms. With changing consumer preferences for sustainably and locally grown foods, new avenues to advertise and make sales in the digital age, and the disruption to regional, national, and international food supply chains caused by the COVID-19 pandemic, farmers are finding themselves in a new paradigm. With so many innovative marketing opportunities, they are unsure of which ones to pursue.

The United States Department of Agriculture Economic Research Service estimated the number of farmers’ markets increased by 180% between 2007 and 2014 and the number of regional food hubs increased by more than 288% (Low et al. 2015). In addition to these structural changes, consumers’ demand for food products has been evolving with a growing demand for locally, sustainably produced goods, organic or otherwise, that are of the highest quality (Roper & Rumble 2018). In 2020, US farmers made $9 billion in direct food sales, and increase of 3% from 2015 (USDA NASS 2022b). Direct food sales in the Southeast accounted for just 7% of these sales, $609 million (USDA NASS 2022a). Florida was the only state in the Southeast that made it to the top ten of direct food sales with $247 million, 41% of the regions total (USDA NASS 2022b). Please refer to https://southernagtoday.org/2022/06/local-food-sales-practices/ for more detailed information on local food sales in the Southeast.

This proliferation of niche and specialty markets are most accessible to small-scale farmers who are focused on quality and diversity and whose small size makes them nimbler to meet a particular buyer’s requirements and obtain the premiums for meeting them. The ability to participate in a variety of markets allows agribusinesses to have multiple revenue streams to diversify their risk so they can still earn an income when there is a disruption in one market. Farmers in the Southeast, in particular, may have more opportunities to take advantage of direct-to-consumer marketing schemes to be on par with the use of these markets by farmers in other regions of the US (USDA NASS 2022b).

While creating a marketing plan may seem daunting, it is a straightforward process when broken down into nine easy steps:

If you are interested in learning more about creating your own marketing plan and utilizing social media to market your agricultural services and products, you can find workbooks and step by instructional videos in English and Spanish at https://ruralengagement.org/digital-marketing-toolkit/

References

Low, Sarah A., Aaron Adalja, Elizabeth Beaulieu, Nigel Key, Steve Martinez, Alex Melton, Agnes Perez, Katherine Ralston, Hayden Stewart, Shellye Suttles, Stephen Vogel, and Becca B.R. Jablonski. (2015). Trends in U.S. Local and Regional Food Systems, AP-068, U.S. Department of Agriculture, Economic Research Service, January 2015. Available at https://www.ers.usda.gov/webdocs/publications/42805/51173_ap068.pdf?v=6801

Roper, C & Rumble, J. (2018) Talking local: Florida consumers’ reasons for purchasing local food. Available at https://edis.ifas.ufl.edu/publication/WC176

United States Department of Agriculture National Agricultural Statistics Service (USDA NASS). (2022a). Census of Agriculture: 2020 Local Food Marketing Practice Survey.

United States Department of Agriculture National Agricultural Statistics Service (USDA NASS). (2022b). Direct Farm Sales of Food: Results from the 2020 Local Food Marketing Practices Survey. Available at https://www.nass.usda.gov/Publications/Highlights/2022/local-foods.pdf

Authors:

Trent Blare

Assistant Professor in Food and Resource Economics at the Tropical Research and Education Center, Homestead Florida

Lauri Baker

Associate Professor in Agricultural Education and Communication at the Center for Public Issues Education, Gainesville, Florida

Fredy Ballen

Data Management Analyst II at the Tropical Research and Education Center, Homestead Florida

Blare, Trent, Lauri Baker, and Fredy Ballen. “How to Create a Marketing Plan in the Digital Era.” Southern Ag Today 2(51.5). December 16, 2022. Permalink

December 16, 2022