USDA’s Chief Economist Seth Meyer kicked off USDA’s 99th annual Agricultural Outlook Discussion board two-day session with a macro-look at what is perhaps in retailer for farmers within the markets within the 2023/24 advertising and marketing yr. Costs are anticipated to dip from 2022/23’s highs however will nonetheless stay worthwhile as tight provides in high world exporting international locations stay tight.
Word: For brevity, I’ve compiled acreage outcomes and financial evaluation in one other article. However that is the context through which these acreage, manufacturing, and utilization selections had been made, so I assumed it was essential to focus on each conversations.
The Ukrainian struggle continues to be a driving issue within the markets, pushing extra wheat acres into manufacturing within the U.S. within the upcoming advertising and marketing yr. Consecutive years of crop shortfalls around the globe and ongoing COVID-related points have helped exacerbate worth volatility.
“Whereas it turned out to be yr in 2022, it wasn’t with out some stress,” Meyer famous, citing quite a few world and macroeconomic components that can affect 2023 acreage allocations, manufacturing prospects, and utilization forecasts.
World forces at play
Ukrainian grain exports are slowing forward of the hopeful renewal of the Black Sea Grains Initiative in March. “That moderates world grain costs, whether or not that grain leads to a selected nation or not, availability on the planet market reduces wheat costs and different commodity costs,” Meyer defined.
Associated:USDA expects U.S. grain harvest enhance in 2023
However even with the BSGI in place, the market incentives to spice up Ukrainian manufacturing aren’t sufficient to persuade Ukrainian farmers to return to pre-war acreage plans amidst the continued Russian invasion. WAOB expects Ukrainian farmers planted fewer winter wheat acres final fall and can be hard-pressed to develop corn acres this spring.
In the meantime, Brazil’s safrinha (second crop) corn planting is delayed. Brazilian farmers are nonetheless inside the optimum window for corn yields, however it is going to largely rely on how rains fall I the South American nation over the approaching weeks.
“If the rain stops on time, it is a first rate crop.If it stops early, it is a unhealthy crop.In the event that they get prolonged rains, they get good yields,” Meyer defined. “A pair weeks can matter when it comes to when that vital level of improvement is available in their rain cycle. This can be a crop, which can be made as American farmers are going into the sector to plant their corn and can be marketed within the couple months earlier than they market their very own crop.”
Brazil’s record-setting soybean harvest is anticipated to offset anticipated crop losses in Argentina because of drought. Whereas Brazil’s behemoth crop takes middle stage on the worldwide market, U.S. farmers nonetheless have some causes to maintain planting soybean acres in 2023.
Associated:2023 internet farm earnings to fall 16%
Home alternatives and challenges
Soy crush margins within the U.S. are extremely worthwhile proper now, encouraging extra home consumption of soybeans. Extra home manufacturing may assist preserve costs within the U.S. excessive within the 2023/24 advertising and marketing yr. Meyer shared that WAOB is anticipating a 25% enhance in crush capability over the subsequent a number of years for soyoil utilized in renewable diesel manufacturing as extra capability comes on-line.
U.S. ag exports set new file highs through the 2022 calendar yr. However a mixture of decrease export volumes and shrinking commodity costs amid a stronger greenback implies that these highs is not going to possible be reset in 2023. Final yr’s exports rose to $196 billion, however 2023 revenues are forecast practically 6% decrease at $184.5 billion.
Even with the decrease estimate, ag export revenues in 2023 are anticipated to be the second largest on file, offering useful revenue alternatives to U.S. farmers within the coming months. China will as soon as once more be the highest purchaser of U.S. ag merchandise this yr, although its gross sales possible gained’t match final yr’s receipts. Mexico and Canada will intently jockey for second and third place.
Cattle markets stay in an extended contraction cycle as Western drought and excessive feed costs stop herd growth exercise in key cattle-producing areas. The continuation (or hopeful finish) of the drought would be the main determinant if herd growth will start in 2025-2026.
Broiler and hog manufacturing will enhance this yr, sending these costs decrease. However the cattle herd shrink is so giant that it’s offsetting positive factors in broilers and hogs when it comes to whole meat manufacturing.
Sturdy client meat demand and the shrinking herd dimension will preserve cattle costs excessive in 2023. However there are rising doubts that customers will proceed that pattern if a recession hits the U.S. financial system this yr.
Profitability projections
Meals worth inflation is starting to ease and enter prices, like gas and fertilizer, are slowing their rise after surging in 2022. Progress in land rents can also be slowing. So whereas revenues could also be forecasted decrease this yr, there may be nonetheless a positive probability farmers will stay worthwhile, even when 2022’s file internet farm earnings (nominal) isn’t matched.
“We noticed some strain underlying what was yr in 2022 and people could also be pondering, hey, 2022 was not sustainable, when it comes to total farm earnings, it was a file excessive yr to some extent, and so, you are going to pull again from that slightly bit. An expectation that, maybe, enter costs will cease rising as commodity costs start to fall,” Meyer forecasted.
Earlier this month, USDA’s Financial Analysis Service forecasted that 2023 internet farm earnings would fall 16% under yr in the past values. Nevertheless, the farm financial system is anticipated to stay sturdy in 2023 as this yr’s earnings are anticipated to be the fifteenth largest on file after inflation changes.
“Commodity worth is falling, enter worth is rising, however slower, authorities funds pulling again from pandemic funds and but, we find yourself with farm earnings quantity above common for the final couple many years. So, is it nearly as good as 2022? No, however the expectation is it is going to nonetheless be an above common yr.”
Study extra about USDA’s acreage, manufacturing and utilization projections: USDA expects U.S. grain harvest enhance in 2023
