By Marcia Zarley Taylor
DTN Executive Editor
WASHINGTON (DTN) -- The gloom overhanging commodity prices isn't expected to lift anytime soon, if forecasts from USDA's Agricultural Outlook Forum released Thursday hold true.
In fact, barring unforeseen production failures somewhere on the globe or a sudden reversal in exchange rates, U.S. crop farmers should be prepared for a long stretch of prices stuck close to today's levels.
"Weak economic growth outside the U.S. and the strong dollar contribute to a competitive trade environment in 2016," USDA Chief Economist Robert Johansson told the forum. "That coupled with record global crops for grains and oilseeds and moderate demand growth over the past few years have contributed to stock building and prices declines over the past year."
Overall, U.S. agricultural exports are forecast at $125.0 billion for fiscal year 2016, down 10.5% from last year, thanks in large part to reduced sales to China. That is a major shift from the past decade, when ag exports to China soared by more than 125%.
While trade with China remains strong, especially in soybeans, USDA downsized its long-term export forecasts for corn there. Last year, USDA projected that China's total grain imports would rise to 24.5 million metric tons by 2024, but this year USDA projected a slower increase to 16.4 million metric tons in that same time frame. China accounts for more than half of the world stocks in corn, cotton and rice, and 40% of the world's wheat stocks, USDA believes, so the country will be focused on unwinding that position.
"China has been accumulating large stocks of corn since 2011," Johansson said, and it will overhang the market for some time. "We expect China to slow imports of corn and corn substitutes to prevent its stockpile from growing even larger." In 2014, China imported a combined total of 20 mmt of sorghum and barley, but he expects this demand to fall to 9.6 mmt in 2016.
Meanwhile, U.S. ag competitors hold advantages. Brazil's GDP has plunged in the last year, accelerating capital flight and devaluing its currency, Johansson said. Since 2010, the real has lost about 50% of its value relative to the dollar, making the country's ag exports more competitive on world markets and helping to erode U.S. market share in soybeans and corn. Brazil is now expected to remain the world's largest soybean exporter, with its share growing from 44.2% in 2015 to 47.5% in 2025; meanwhile, the U.S. share of soybean exports is expected to fall to 33% by 2025 from its current 36% share.
The U.S. was the largest exporter of wheat as recently as 2013, but it is expected to increasingly lose market share to Russia over the next decade.
On a more positive note, the Trans-Pacific Partnership (TPP) with 11 other countries and the Transatlantic Trade and Investment Partnership (TTIP) with the EU could counter some of these negative trade results. However, USDA's current long-term price forecasts offer little optimism for commodity producers. The pain is especially hard for high-cost growers.
In its near-term forecast, USDA now expects the 2016 corn crop to average only $3.45 per bushel, down from $3.60 per bushel for the 2015 crop; 2016 soybeans $8.50 per bushel, down from $8.80 per bushel; and 2016 wheat $4.20 per bushel, down from $5.00 per bushel.
USDA's 10-year price forecasts show corn's season price only gaining a few pennies until it hits a high of $3.75 per bushel in 2024/25. Soybeans hover under $9 per bushel until 2019/20. Wheat, which averages $4.40 per bushel in 2016/17, will only rebound to $4.90 per bushel by 2024/25, USDA estimated.
While some may view those numbers as grim, USDA Secretary Tom Vilsack urged people not to overreact. "Forecasts are obviously very important because people have to make decisions based on what they think might happen," Vilsack said. "Here's the reality. I would rather manage change than be managed by change. I would rather be proactive; I would rather be optimistic and look at ways in which we can improve domestic consumption of ag products." He still sees huge opportunities long-term for renewable fuels, biomass and other alternative uses.
But Tim Burrack, an Arlington, Iowa, farmer attending the forum, found the long-term corn price and export outlook particularly disappointing.
"My input suppliers and landlords will be in for shocks with this scenario," Burrack said. "I've been absorbing [lower margins] for the last two years. But if producers don't get more relief on cost of production, we'll be out of working capital in the next year or two."
The Iowan had just negotiated $50- to $75-per-acre decreases in 2016 cash rents with several landlords last weekend, but that alone won't help him get to breakeven.
"This is the cycle of agriculture returning to normal," Burrack said, referring to the scramble for profits. "We just had a six- to seven-year ethanol blip."
Marcia Taylor can be reached at marcia.taylor@dtn.com
Follow her on Twitter @MarciaZTaylor
(KM/AG)
© Copyright 2016 DTN/The Progressive Farmer. All rights reserved.