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USDA Agricultural Projections

14 February 2013

USDA Agricultural Projections to 2022 - February 2013USDA Agricultural Projections to 2022 - February 2013

This report provides projections for the agricultural sector to 2022. Projections cover agricultural commodities, agricultural trade, and aggregate indicators of the sector, such as farm income and food prices.
USDA Agricultural Projections

US Crops

In the short term, the US crops sector responds to continuing high prices for most crops in 2012/13. Planted area for the 8 major field crops in 2013 is projected at more than 254 million acres. While that is down from the large acreage planted in 2012 when favorable spring weather combined with strong economic incentives, 2013 plantings would be the second largest acreage since 2000. As US and global supplies rebound and prices decline for most crops, US planted acreage for these crops is projected to fall over the next several years in response to lower producer returns.

Over the longer run, steady global economic growth provides a foundation for continuing strong crop demand. Corn-based ethanol production in the United States is projected to rebound from 2012’s decline, although the pace of further expansion slows considerably. Nonetheless, the combination of world economic growth, a depreciating dollar, and continued expansion of global biofuels production supports longer run gains in world consumption and trade of crops. Prices are projected to fall from recent record highs but remain above pre-2007 levels for many crops. Following the near-term decline in prices and planted acreage, strong demand and rising prices provide economic incentives for increases in plantings beyond 2015.

Acreage enrolled in the Conservation Reserve Program (CRP) is projected to decline below 28 million acres in 2013-14 before rising back to close to 32 million acres by the end of projection period. The projections reflect provisions of the Food, Conservation, and Energy Act of 2008 (the 2008 Farm Act), which is assumed to be extended through the projection period.

US planted area: Eight major crops 1/

Weather-adjusted Trend Yields for Corn and Soybeans

Long-term trends in crop yields reflect improvements in yield-enhancing technology, such as new hybrids, as well as improvement in production practices, such as better pest and nutrient management and precision planting, that in turn support greater per-acre plant populations. However, several years of poor weather during the US growing season for corn and soybeans have resulted in below-trend yield outcomes for the last 2-3 years. Thus, assessing the effects of weather on recent yields is important for determining underlying trend yields for these crops. Weather-adjusted yield models were developed for corn and soybeans to provide this information. Results summarized here are based on data available in January 2013. Earlier versions of these models, based on data available in November 2012, were used for the weather-adjusted, US corn and soybean trend yield projections in this report.

Corn yield model

The corn model is for national yields and is estimated over the past 25 years (1988-2012), thereby including both the 1988 and the 2012 droughts. In addition to a trend variable, the model uses as explanatory variables mid-May planting progress, July weather (precipitation and average temperature), and a June precipitation shortfall measure in selected years. Including those variables helps explain previous yield variations and deviations from trend.

Corn plantings by mid-May are important for yield potential because that allows more of the critical stages of crop development, particularly pollination, to occur earlier, before the most severe heat of the summer. Earlier pollination is also generally associated with less plant stress from moisture shortages. Most of the corn crop develops in July, so weather in that month is included in the model. Finally, while weather in June is important for development of the corn crop (and June typically has lower temperatures and more rain than July), effects of June weather are typically small relative to July weather effects. However, extreme weather deviations from normal in June can have larger impacts, as seen in 2012 and in 1988. To represent that effect, the model uses a measure of the precipitation shortfall from average in years when June precipitation is in the lowest 10 percent tail of its statistical distribution. The mid-May planting progress variable is based on weekly data from USDA’s National Agricultural Statistics Service (NASS) and is prorated to May 15 from adjacent weeks’ results for years that the statistic was not reported for that date. The weather data is from the National Oceanic and Atmospheric Administration. The planting progress and weather data used are for eight key corn-producing States (Iowa, Illinois, Indiana, Ohio, Missouri, Minnesota, South Dakota, and Nebraska). Those eight States typically rank in the top 10 of corn-producing States and accounted for an average of 76 percent of US corn production over the estimation period. An aggregate measure for the eight States for each of those variables is constructed using harvested corn acres to weight State-specific data.

The effects of mid-May planting progress and July temperatures on corn yield are each linear in the model—for those variables, each unit of change has a constant effect on yield. Similarly, the June precipitation shortfall variable is linear for the years it is nonzero. The effect of July precipitation, however, is nonlinear in the model because the response of corn yields to different amounts of precipitation above and below average is asymmetric. That is, reductions in corn yields when rainfall is below average are larger than gains in corn yields when rainfall is above average. The model uses a squared term for July precipitation to represents that asymmetric effect. The estimated regression equation (shown on the following page) explains over 96 percent of the variation in national corn yields in the estimation period (more than 91 percent of the variation around the equation’s trend).

Soybean yield model

A similar approach was used to develop a weather-adjusted trend yield model for soybeans. The model was estimated over the same 25-year period (1988-2012) as for corn. The soybean equation differs, however, by not including a planting progress variable and by using an average of July and August weather variables rather than just July weather. Those differences reflect a wider window for reproduction for soybeans than for corn. Nonetheless, a similar variable for June precipitation shortfall is included to reflect the potential importance of extreme weather situations in that month. Also, the weather variables included are weighted averages for seven States (Iowa, Illinois, Indiana, Ohio, Missouri, Minnesota, and Nebraska), using harvested soybean acres to weight State-specific observations. Those were the top seven soybean producing States over the estimation period, accounting for about 70 percent of US soybean production during those years.

Weather-adjusted Trend Yields for Corn and Soybeans

Similar to the model for corn, the effects of July-August temperatures and the June precipitation shortfall variable are linear in the soybean yield model, and the July-August precipitation effect is nonlinear. The estimated regression equation explains 80 percent of the variation in national soybean yields in the estimation period (50 percent of the variation around the equation’s trend). Overall, the model’s weather variables have lower statistical significance in explaining soybean yields than in the corn yield model, likely reflecting the longer reproductive period for soybeans which makes the timing of favorable weather less critical than for corn.

Implications for 2013 yields and beyond

Assuming that corn planting progress by the middle of May 2013 is at the average over the past 10 years of 80 percent, that June weather is not extremely dry, and that average weather occurs in July, the model suggests a 2013 corn yield of about 164.3 bushels an acre. However, a weighted average of corn yield estimates for alternative levels of July precipitation (assumed to have a statistically normal distribution) results in a lower mean expected corn yield for 2013 of 163.6 bushels per acre. That reduction reflects the asymmetric response of corn yields to different amounts of rainfall above and below the average. That mean expectation accounts for variation in July precipitation within one standard deviation of its average, covering 68 percent of its statistical distribution. For longer term projections, the adjusted corn yield of 163.6 bushels per acre becomes the 2013 starting point and would be incremented each subsequent year by the 1.95 trend coefficient estimate.1

Similarly, with average July-August weather and June weather that is not extremely dry, the soybean model suggests a 2013 yield of 44.6 bushels an acre. The weighted average of soybean yield estimates for alternative levels of July-August precipitation results in a lower mean expected soybean yield for 2013 of 44.5 bushels per acre. That reduction reflects the asymmetric response of soybean yields to different amounts of rainfall in July-August precipitation. The adjustment for soybeans is relatively smaller than the similar adjustment for corn, suggesting less soybean yield variability due to weather than for corn. From the adjusted soybean yield for 2013, longer term projections would be incremented each subsequent year by the 0.45 trend coefficient estimate.1

Adjusting for Developments During the 2013 Growing Season

As the planting and growing seasons for corn and soybeans progress, the yield models can be used to make revisions to the 2013 yield expectations as actual data for mid-May corn planting progress and July and August weather become available. Additionally, the models provide a framework for assessing yield reductions should June weather be extremely dry, such as in 2012 and 1988.

USDA’s first survey-based estimates of corn and soybean yields for 2013 will be released by NASS in the August Crop Production report.

1 The long-term corn and soybean yield projections in this report are based on earlier versions of the models presented here that were estimated using data available in November 2012. Those earlier estimations implied 2013 yields for both corn and soybeans that are 0.1 bushels per acre lower than those discussed in this box. Trend coefficients were similar for both estimations.

US corn: Feed and residual use, ethanol, and exports

Lower supplies and higher prices resulting from weather-reduced 2012 US corn production have led to lower domestic use and exports. Corn acreage is projected to remain high in the near term, with normal yields leading to an increase in production and a recovery of corn use. Although corn-based ethanol production is projected to slow significantly, its continued high levels combine with gains in exports and feed use to keep corn use high. Following several years of adjusting markets, increasing producer returns lead to gradually rising corn acreage in a range of 88 million to 92 million acres after 2015. For other feed grains, after near-term adjustments, planted area falls back from recent highs over the rest of the projection period.

  • US ethanol production is based almost entirely on corn as the feedstock. Projected increases in corn-based ethanol over the next 10 years are much smaller than occurred in 2005-2010. 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.

  • Feed and residual use of corn initially rises from low 2012/13 levels mostly because of the projected increase in corn production (which affects the “residual” component). Following this near-term adjustment, lower corn prices and increasing meat production underlie gains in feed and residual corn use. Also supporting gains in feed use of corn is a slowdown in the growth of production of distillers grains, a coproduct of dry mill ethanol production, as the corn-based ethanol expansion moderates.

  • Food and industrial use of corn (other than for ethanol production) is projected to rise over the next decade. Use of corn for high fructose corn syrup is supported by growing exports to Mexico as domestic use slows. Slower increases for glucose and dextrose use reflect consumer dietary concerns and changes in tastes and preferences. Other food uses of corn are also projected to rise more slowly than the increase in population. Starch use of corn, such as in the production of drywall, responds to economic growth and industrial demand, rising faster than population throughout the projection period.

  • US corn exports increase sharply from 2012/13 weather-reduced levels and then rise at a slower pace during the rest of the projection period in response to strong global demand for feed grains to support growth in meat production. Export gains are particularly strong to China, which account for about 40 percent of the projected overall growth in global corn imports. The United States remains the world’s largest corn exporter, accounting for an average of about 45 percent of global corn trade over the projection period. However, this trade share is lower than the 1970-2000 average above 70 percent, largely due to the use of corn for ethanol production in the United States.

US wheat: Domestic use and exports

Strong wheat prices and expected net returns boost wheat plantings for 2013. However, with relatively weak overall demand growth projected for wheat, producer returns initially fall and then rise less than returns for other crops in subsequent years. This leads to a decline in wheat plantings to 50 million acres by the end of the projection period, continuing a long-term general downward trend since the early 1980s.

  • Domestic demand for wheat reflects a relatively mature market. Food use of wheat is projected to show moderate gains, generally in line with US population increases.

  • Feed use of wheat, a lower value market for the crop, declines in the early years of the projections from the high volume in 2012/13. Wheat feed use remains steady through the rest of the projection period as prices relative to corn allow a moderate level of wheat in feed rations.

  • US wheat exports fall to under 950 million bushels annually for most of the projection period. US wheat trade faces competition from the Black Sea region, whose wheat exports rise from 22 percent in 2013/14 to 30 percent of global trade over the next decade. EU wheat exports grow from a global market share of 14 percent to 15 percent by 2022/23. For the same time period, the US market share declines from 19 percent to 16 percent.

US soybeans: Domestic use and exports

US soybean plantings decline from high levels of 2012 during the initial years of the projections, as prices and producer returns fall. Over the rest of the projection period, growth in both domestic use and export demand lead to increases in prices and returns. Soybean plantings increase somewhat before remaining steady toward the end of the projections.

  • Lower US livestock production since the 2008 peak and increased availability of distillers grains and canola meal have lowered demand for soybean meal as a livestock feed in recent years, thereby generally reducing domestic soybean crush. As increases in meat production resume, soybean crush is projected to follow.

  • Strong global demand for soybeans, particularly in China, boosts soybean trade over the projection period—China accounts for almost 90 percent of the increase in world soybean imports. Even though US soybean exports are projected to rise, competition from South America leads to a reduction in the US share of global soybean trade from 39 percent in 2013/14 to about 30 percent by 2022/23.

  • US exports of soybean oil and soybean meal also face strong competition from South America. Argentina, in particular, is a competitive exporter of soybean products because its graduated export taxes favor exports of soybean products over soybeans. Strong growth in biodiesel production in Argentina, however, limits the country’s soybean oil export growth, allowing the US global trade market share to increase. However, Argentina is projected to account for more than half of global trade of soybean meal and captures most of the gain in global soybean meal trade over the next decade.

  • Soybean oil used to produce methyl esters (biodiesel) in the United States grows to 6.3 billion pounds by the end of the projection period, representing about 29 percent of total use of US soybean oil and supporting the production of over 800 million gallons of biodiesel. This growth is spurred by the mandate of 1.28 billion gallons of biomass-based diesel use starting in 2013 and by demand for biodiesel to meet a portion of the Renewable Fuel Standard’s advanced biofuel mandate. Corn oil coproducts from ethanol plants (including corn oil extracted from distillers grains), other first-use vegetable oils, animal fats, and recycled vegetable oils are also used as feedstocks to produce biodiesel. Growth in the food use of soybean oil slows as projected imports expand for other vegetable oils.

US farm-level prices: Corn, wheat, and soybeans

Weather has been an important factor affecting global wheat, corn and, and soybean production over the past several years, leading to increases in grain and oilseed prices since 2009/10. Market responses to these high prices are projected to reduce prices over the next couple of years. Nonetheless, US prices for corn, wheat, and soybeans are projected to remain historically high, above pre-2007 levels. The continuing influence of several long-term factors—including global growth in population and per capita income, a depreciating US dollar, increasing costs for crude petroleum, and rising biofuel production—underlies these price projections.

  • After declining from their current high levels, corn prices are projected to begin increasing again by 2015/16 due to growth in feed use, exports, and demand for corn by ethanol producers.

  • Strengthening demand for soybeans and soybean products holds soybean prices high throughout the projection period. Similar to the price projections for corn, after near-term market adjustments reduce soybean prices from recent highs, prices for soybeans rise moderately after 2014/15 through the rest of the projection period.
  • Wheat prices also decline through 2014/15 reflecting near-term market adjustments. Subsequent projected price increases for wheat are more moderate than those for corn, reflecting relatively smaller gains in use.

US rice: Domestic and residual use and exports

Competition from other crops is projected to keep US acreage planted to all rice from increasing in 2013. While a small area increase is projected for medium- and short-grain rice, long-grain rice plantings fall. With lower relative prices for competing crops in subsequent years, rice area rises through the rest of the projection period.

  • Domestic use of rice is projected to grow slightly faster than population growth. Moderate expansion in US food use of rice is projected to continue over the next decade. US rice imports are projected to expand over the next decade, but at a slower rate than in the past. Asian aromatic varieties, classified as long-grain rice, are expected to continue to account for the bulk of US purchases.

  • US rice exports are projected to rebound from a low level in 2013/14 and then increase over the next decade. Continued growth of US rough-rice exports to Latin America (nearly all long-grain rice) is projected to account for most of the overall expansion of US rice exports. Overall, the US market share of global rice trade holds near 9 percent over most of the projection period.

  • After near-term market adjustments, prices for rice are projected to rise after 2014/15. Long-run gains in producer returns after 2014 support rising US rice acreage.

US upland cotton: Domestic mill use and exports

Lower cotton prices following the runup of 2010/11-2011/12 initially lead to a reduction in upland cotton plantings in 2013 as competing crops have higher expected returns. As prices and returns for competing crops decline over the next several years, cotton plantings rise through 2015. However, with cotton yields and cotton prices rising only moderately in subsequent years, producer returns hold stable and decline relative to those of other crops, so upland cotton plantings decline over the rest of the projection period. US mill use of upland cotton is projected to rise moderately in the projections while cotton exports initially rise before leveling off after 2016/17.

  • A decline in US mill use of cotton since the late 1990s reflected a gradual, long-term movement of spinning capacity to developing countries. Continued increases in US imports of apparel from Asia will reduce domestic apparel production and lower the apparel industry’s demand for fabric and yarn produced in the United States. However, US mill use is projected to grow somewhat over the next decade in response to rising demand for US textile product exports, mainly to other countries in the Western Hemisphere. Nonetheless, even with this growth, however, domestic mill use is projected to represent about 23 percent of total use at the end of the projection period, down from more than 60 percent in the late 1990s.

  • US upland cotton exports are projected to rise over the initial years of the projections from low levels of 2011/12-2013/14, before leveling off after 2016/17. While the US share of global cotton trade initially rises, this share declines later in the projection period. Nonetheless, with a global trade share projected at 32 percent in 2022/23, the United States remains the world’s largest exporter of cotton.

US sugar: Domestic production, use, and imports

  • Moderate growth is projected for US beet and cane sugar production over the next decade. Beet sugar production levels in the first two years of the projections are low, at an annual average of 4.752 million short tons, raw value (STRV) due to lower sugarbeet prices relative to prices for alternative crops. Beet sugar production in 2022/23 is projected at 5.319 million STRV, about 4.20 percent higher than in 2012/13. Cane sugar production in 2022/23 is projected at 3.864 million STRV, about 3.87 percent higher than in 2012/13.

  • Over the projection period, sweetener availability (the sum of refined sugar, sugar in net imported products, and high fructose corn syrup (HFCS)) is 119 pounds per capita. There is only limited substitution between sugar and HFCS as a function of relative prices. Sugar deliveries for human use average 11.854 million STRV over the projection period, with annual growth of about 0.7 percent a year.

  • Beet sugar production averages 345,000 STRV below its average share of the Overall Allotment Quantity (OAQ) under the sugar marketing allotment program. In no year does beet sugar production exceed its OAQ share. Cane sugar production averages 839,000 STRV below its average OAQ share. Production levels in all cane sugar producing States remain below their OAQ shares.

  • Sugar imports from Mexico rose sharply starting in 2008 when duty-free sweetener trade between the United States and Mexico began, and are projected to average 1.516 million STRV over the next decade, representing about 12.8 percent of US domestic sugar consumption. Two conditions in Mexico underlie this projection. First, beverage and food manufacturers in Mexico continue to expand the substitution of lower cost HFCS (except for the first two years of the projection period) for domestic sugar. Second, remunerative prices in Mexico favor modest expansion of sugarcane area and increased sugar production. It is assumed that Mexico will not import sugar from third nations to replenish low sugar supplies caused by large exports to the US market.

  • Tariff-rate quota (TRQ) sugar imports from US commitments made to the World Trade Organization (WTO) and to several Free Trade Agreements (FTAs) average 1.444 million STRV. It is assumed that TRQ import levels are not increased during any year from initially established levels consistent with WTO and FTA minimum access commitments.

  • There are no sugar loan forfeitures and there are no Commodity Credit Corporation (CCC) purchases of sugar for ethanol in the projections because projected raw cane and refined beet sugar prices remain above the minimum prices to avoid forfeiture.

Value of US horticultural production

Farm sales of horticultural crops are projected to grow by 1.4 percent annually over the next decade, reaching $71 billion in calendar year 2022, up from $62 billion in 2012.

  • The value of farm production of fruit and tree nuts is projected to grow at an annual rate of 2 percent over the next decade, largely due to sales growth of tree nuts and noncitrus fruits. Fruit and tree nuts are projected to rank first among horticultural crops in terms of farm sales value with a share of 44 percent. Farm sales value of vegetables and pulses is projected to grow 1.2 percent per year, led by fresh-market vegetables, while farm sales of greenhouse and nursery crops are projected to increase at an annual rate of 0.5 percent.

  • The volume of US farm production of horticultural crops is projected to rise by 0.4 percent annually. Vegetables lead this growth at an annual rate of 0.5 percent, reaching 131 billion pounds in 2022 as fresh-market production averages 1.6-percent growth. Fruit and nut production expands by 0.1 percent per year to 71 billion pounds in 2022 as noncitrus production growth more than offsets citrus production decline.

  • Producer prices for vegetables are projected to rise at 0.7 percent per year due to strong fresh-market vegetable production. Producer prices for fresh fruits rise by 1.8 percent per year due to slower production growth than for vegetables and due to higher citrus prices as citrus production declines.

  • US per capita use of fruits and tree nuts increases from 287 pounds in 2012 to 295 pounds by 2022, an annual average growth rate of 0.3 percent. Per capita use of vegetables initially drops in 2013 due to a smaller potato crop then levels off to an average 406 pounds. The total supply of fruits, nuts, and vegetables over the next decade, both domestic and imported, is projected to grow at an average rate of 1.1 percent per year.

Value of US horticultural trade

The US trade deficit in horticultural crops and products is projected to expand from $12.4 billion in fiscal year 2012 to $22.1 billion in fiscal year 2022.

  • Imports increasingly supplement domestic production of horticultural crops and products. By 2022, imports are projected to supply 52 percent of domestic fruit and nut use and 24 percent of vegetable use, in terms of farm weight. In 2012, these shares were 44 percent and 19 percent, respectively.

  • The export market becomes more important for US horticultural producers. In 2022, exports are projected to be the destination for 27 percent of US fruit and nut production, up from 23 percent in 2012, while 21 percent of vegetable production will be sold in foreign markets, up from 16 percent in 2012.

  • The value of US horticultural imports is projected to increase by 4.5 percent annually over the next decade, compared with 8.0 percent on average during the past decade, reaching $64.5 billion in fiscal year 2022 (fiscal 2022 covers October 2021-September 2022). Fruit and nut imports account for $21.3 billion, while vegetable imports account for $15.8 billion.

  • Exports of US horticultural products are projected to reach $42.4 billion in fiscal year 2022. Of this amount, fruit and nuts contribute $20.8 billion, and vegetables contribute $8.2 billion.

February 2013

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