Ag Outlook can spur bulls
The USDA will release new 10-year agricultural projections Monday. USDA publishes the projections each year in February.
Recall that it was in this report in 2007 that the bull market of Ag commodities was sprung, when USDA projected the huge ethanol expansion and demand boom from the world's importers (especially China) that began the great bull market of 2007 to 2011. It culminated in the price increases to $8 corn, $16.50 soybeans, and $13 wheat ($24 if you are a spring wheat producer!) in 2008, only to be bested in 2011 for corn (but wheat and soybeans to be below 2008 highs).
The long-term projections are developed by interagency committees in USDA, with the Economic Research Service (ERS) having the lead role in the preparation of the report. The new projections cover crop and livestock commodities, agricultural trade and aggregate indicators, such as farm income and food prices through 2021. The projections do not represent a USDA forecast, but a conditional, long-run scenario based on specific assumptions about farm policy, weather, the economy and international developments. Provisions of the 2008
Farm Act and subsequent legislation are incorporated into the projections and are assumed to remain in effect through 2021. Normal weather also is assumed throughout the projection period.
It is through this report that we get a glimpse of how strong demand is for our products, and also how adept we are at meeting that demand with our production of Ag commodities. This report might shape the outline of trading for the coming few years, as projected acreage from this report ends up in the spring USDA projections for the new crop year.
The report will be updated from the November forecasts at the USDA Ag Outlook Annual conference Feb. 23-24, and these updates will also be anxiously awaited by the market. Recently, the market has been excited about the expected reduction in SAM production estimates due to drought in the southern SAM production area (southern Brazil and Argentina). Private reports have cut both corn and soybean production due to the recent dryness of the past few months.
However, Pro Ag wonders openly if the reductions are overdone. If the
reductions to occur, we also openly wonder about the USDA long term projections and what they might show.
Of most concern to Pro Ag is the expected 10 million or more acreage hike in 2012 US planted acreage, with that much prevented planting in the Dakotas and MT that will likely be planted in 2012. We also openly wonder about the recently abandoned CRP acreage that will also come under production in 2012, as well as recently busted up pasture/wooded areas. You see, it's the fertilizer of production to have high prices, as it stimulates production from all corners of the world.