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2009 USDA Baseline Projections

- Tuesday, March 9, 2010


This analysis featured on the HGCA's website

The 2010 USDA Baseline Projections highlight relatively favourable long term prospects for maize based on some further increase in demand for ethanol production and recovery in livestock feed demand. For soya beans growth in output will be matched by increased domestic crush and exports although the US share of world trade will fall. Wheat prospects are less favourable with recent downward trends in production and exports expected to continue

Background

Long term US supply and demand, agricultural trade, farm income and food prices tables together with a summary text are published annually by the USDA. These provide a scenario for major US commodity market developments for a ten-year period. This year they cover the period to 2019-20. They are particularly valued in the context of strategic and investment planning.

As the forecasts are published in February but based on conditions that existed during the fourth quarter, the USDA naturally stresses their limit value as near term market forecasts. For instance this year’s forecasts used the November 2009 revision to current crop year supply and demand projections and did not make allowance for the difficult harvesting conditions which followed, or the January winter wheat planting survey. The impact of the February rulings of the Environment Protection Agency on bio fuels will also be left to next year projections.

The USDA noted, "... the projections are not intended to be a forecast of what the future will be, but instead are a description of what would be expected to happen under these very specific external circumstances and assumptions." Where they are of value is in the current, or late 2009, expectations for long term developments and also how those expectations have changed since the last projections.

In a general context the projections assume global economic recovery with steady growth in demand for crops over the next several years, although growth in corn-based demand for ethanol production will slow. But with longer run increases in global consumption and trade, prices for many crops are forecast to remain at historically high levels.

Maize

The non-random influence of ethanol demand for maize has undoubtedly had a bigger impact on crop prospects than anything else. US policy developments supporting the production of fuel ethanol and the announcement of alternate energy targets in past-President George Bush’s January 2007 State of the Union address and ensuing legislation have been and are expected to continue to be felt beyond the feed grain market and the US.

Successive USDA baseline projections, prior to the 2007 mandates for ethanol use, had raised future planted area scenarios for maize(Graph 1). But forecasts suggested that exports of both maize and soya bean, the planting of which competes with maize, could be sustained at levels of that time.

With the mandated use of increased ethanol after the 2007 projections, a significant increases in maize area was forecasted with a scaling back in maize exports to accommodate the increase in feedstock for ethanol output. Recent increases in maize yields justifying higher trend yields projections have allowed for at the same time both decline in planted area and an increase in output, and some recovery in export projections(Graph 2).

This year’s baseline projections anticipated stronger global demand for feed grains to support growth in meat production but with U.S. share of global maize trade dropping below 60 percent over the ten years. Domestic demand is projected to restrain the US exports growth below the level of growth of the international market(Graph 3).

Soya Beans

US soya bean prospects have for some time been squeezed by competition from maize for area and from increasing South America output for markets. The baseline projections have not in recent years increased yields much, but over the last two years forecasts for output have been raised with higher planted area over the next decade increased. Some of this has been expense of maize but gains have also been as a result of area diverted from other crops. Forward exports of soya beans have been raised significantly but the US share of global trade is still expected to fall.

This year’s baseline projections anticipate recovery in US meat production and soya meal demand but, relative to ethanol, limited eventual demand for soya oil for bio-diesel - growth only to 13-15 percent of total soya oil use over the ten years. Competition from South America, particularly Brazil, is expected to limit gains in U.S. exports with US market share of growing global soya bean trade declining from 45 percent in 2009/10 to 38 percent in 2019/20.

Wheat

US wheat prospect are not encouraging relative to maize and soya beans. There is no expectation, nor has there been for several years, that the industry will benefit significantly from improved technology or domestic or international demand. Response to some what random occurrences, such as the succession of years of deficit global wheat production resulting in a tight supplies and a spike in prices as occurred in 2007-08, are likely, as they have been in the past and were recently, to be short lived.

The USDA baseline projection have over the yeas forecast little lift from wheat yields with the only supply response to the 2007-08 price spike coming from release of area from the Conservation Reserve Program. This year’s projection suggest this will be quite temporary.

For wheat the US currently projects modest growth in food use, recent gains in low value feed use being sustained and flat export forecasts. The latter is expected to result in the US share in global exports declining from 19 to 16 percent with growth in Russian exports resulting in it replacing the US as the largest wheat exporter. The forecast for feed use of wheat is of no significant, except that it reflects relatively poor price prospects for wheat relative to maize.

Prices

The USDA projects farm level maize prices to remain historically high due to continued although slower growth in demand for corn to produce ethanol as well as growth in feed use and exports. For soya beans strengthening demand is projected to hold prices high throughout the projected period. For wheat prices are projected to be relatively stable over the next decade as modest yield gains offset much of the limited increase in demand but with declining area and the current high level of stocks will only be slowly reduced.

David Walker (001) 780 434 7615


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