— Prices for the two biggest U.S. crops will fall this year on record corn and soybean production, easing food inflation while providing less cash for growers recovering from drought, the government says.
Corn will plunge 33 percent and soybeans will drop 27 percent, Joe Glauber, the chief economist at the U.S. Department of Agriculture, said Thursday at the agency's annual outlook forum. Corn inventories before the 2014 harvest will triple from this year's projected figure, the department said Friday. The increased supplies mean receipts for the major crops will fall 1.5 percent to $216.3 billion, the USDA said.
The lower prices, which are below a separate USDA 10-year forecast made earlier this month, are a classic supply response to the worst drought since the 1930s, Glauber said. After the dry conditions pushed corn to a record $8.49 a bushel on the Chicago Board of Trade in August, growers are planning to produce more, driving prices lower as inventories rebuild, he said. Farmer profit will still reach a record $128.2 billion this year as supplies are replenished, the USDA said.
"High prices ahead of planting should encourage large corn and soybean acreages, and, assuming normal yields, stock levels should rebuild and prices should moderate," Glauber said.
Farmers will plant 96.5 million acres of corn, for a crop of 14.53 billion bushels, the USDA said. About 77.5 million acres of soybeans will be sown, for projected output of 3.405 billion bushels; wheat acres will total 56 million, with production at 2.1 billion bushels, the department said.
Corn inventories will reach 2.177 billion bushels by Aug. 31, 2014, the most since 1988, the USDA said, while soybean supplies will total 250 million bushels, double a year earlier. Wheat reserves on May 31, 2014, will be 639 million bushels, down 7.5 percent.
Which crops farmers plant are crucial for seed-and- pesticide sellers including Monsanto and DuPont, food- makers such as General Mills, and ethanol producers like Archer-Daniels-Midland Co., all of which have their profits affected by the availability of farm products.
Prices for wheat, the fourth-biggest U.S. crop, after hay, will drop 11 percent in the year starting June 1, the USDA said, even as production falls because of lingering drought in the western and southern Great Plains. Cotton prices will rise 2.8 percent while the area planted with the fiber falls to 10 million acres, the department said Friday.
Wheat acreage will rise 0.5 percent. Combined with corn and soybeans, plantings of the three crops may be the most since 1982, Glauber said.
"The record crop forecasts were sobering news and will cast a negative bias to the corn and soybean markets," Richard Feltes, the vice president of research at R.J. O'Brien & Associates in Chicago, said in an interview at the conference.
Farmers deciding what to plant are guided by concerns ranging from the prices they expect at harvest and the cost of fertilizer and other inputs to what the weather is likely to allow. Corn yields on average about four times as much grain per acre as wheat, for example, yet wheat needs much less water than corn.
"You're balancing soil conditions with what the likely market is going to be," Andy Novakovic, a professor of agricultural economics at Cornell University in Ithaca, New York, said in an interview. "In some places, the drought isn't something farmers have to worry about anymore," while in others, growers aren't even sure their seeds will germinate, he said.
Outside Mohall, N.D., Jeff Oberholtzer is planning to double the land he sows with corn this year, to about 600 acres, as seed varieties better adapted to northern conditions are boosting his yields. With an ethanol plant nearby that will buy the grain, it's a sensible crop to grow, even at a lower price, he said.
"It seems to be a better fit for us, and the soil looks good," said Oberholtzer, 29.
Corn prices paid to farmers this year are projected to average $4.80 a bushel, down from $7.20; soybeans will average $10.50, down from $14.30, while wheat will fall to $7 a bushel from $7.90, the USDA said Thursday. Cotton prices are projected to rise to 73 cents a pound from 71 cents.
The lower prices will be a boon to the livestock industry, where the cattle herd has dropped to the smallest since 1952 after ranchers sold animals for slaughter to avoid high feed costs last year, Bob Young, chief economist of the American Farm Bureau Federation, the largest U.S. farmer group, said in a recent interview. Consumers may also be helped later in the year, as replenished inventories will ease pressure on food costs, USDA food economist Richard Volpe said yesterday.
All projections of lower prices and higher supplies are based on assumptions of normal weather, Glauber and Volpe said. For many farmers, last year's drought damage isn't affecting this year's hopes. Jack McCormick's parched Illinois soil last year yielded about a quarter of the corn it normally does. This year, he's making no changes to his planting.
"If I knew we'd have a drought this year I'd plant less corn, and if I knew it would be wet I'd plant more, but I don't know that," said McCormick, who will split almost 1,200 acres near Ellis Grove equally among corn, wheat and soybeans, just as he did last year, before similar forecasts of a record harvest were dashed by dryness.
"We have a good rotation," he said. "We are not going to change our cropping patterns just because of one year of drought."
— With assistance from Jeff Wilson in Chicago.