USDA projection has corn under new target

USDA's ten-year price projection for corn released Thursday shows that prices would be below the so-…

USDA's ten-year price projection for corn released Thursday shows that prices would be below the so-called reference price that would trigger payments to farmers under the farm bill's new Price Loss Coverage. The reference price for corn is $3.70 a bushel. The price in the 2014-15 marketing year, the first covered by the new law, is projected to be $3.65. When the national average prices drops below $3.70, PLC payments would be made on 85% of a farm's historical base acres and on a farm's historical yields, which farmers can update under the new law.

In the following years, USDA sees prices dropping quite a bit below that reference price, bottoming out at 3.30 a bushel in 2015-16 and staying below $3.70 a bushel for the life of the farm bill. Corn would be at $3.60 a bushel in the 2018-19 marketing year, if USDA's projection turns out to be an accurate forecast.

USDA's projection for soybean prices doesn't show them dropping below the PLC reference price of $8.40 a bushel. After bottoming out in 2015-16 at $8.85 a bushel, they rise to $9.25 in 2018-19.

Of course, the economists and others who put together such long-term projections take great pains to explain that they're not a forecast. No one knows what prices will be ten years out, or even at the end of the five-year farm bill.

The projections extend what economists think could happen, given what they know today. They're based on many assumptions. For example, they project steadily increasing trendline yields, with corn yields averaging 183.6 bushels by the end of the decade. Soybeans are projected to hit a 49.2 bushel national average yield by 2023. The real world of weather isn't so benign as to allow a smooth path upward. USDA's projected planted corn acres will fall to 93.5 million this year, and bottom out at 88 million in 2017. Soybean acres would rise to 78 million planted this year, and would not be any higher at the end of the decade.

The underlying demand for corn will be driven by increasing meat production and a rebound in U.S. corn exports, the USDA report says.

"Only small growth is projected for corn-based ethanol production over the next 10 years," the reports says. "This projection reflects declining overall gasoline consumption in the United States (which is mostly a 10-percent ethanol blend (E10), infrastructural and other constraints on growth in the E15 (15-percent ethanol blend) market, and the small size of the E85 (85-percent ethanol blend) market. Nonetheless, a strong presence for ethanol in the sector continues, with about 35 percent of total corn use expected to go to ethanol production during the projection period."

USDA sees soybeans competing for corn and other crops for land use, thanks to both growth in domestic livestock use and in exports. "China accounts for all of the increase in world soybean exports," USDA says. The U.S. increases its soybean exports, but its share of global soybean trade falls from 38% in 2013-14 to 32% at the end of the decade.