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‘Big Crops, Low Prices,’ for a Long Time Ahead, Says CBO
Farm-gate prices for corn and soybeans, the two most widely grown crops in the United States, are stuck in a rut for years to come, said the Congressional Budget Office (CBO) on Monday in its long-term budget outlook. Farmers will grow near-record corn crops to generate revenue while slowly working down a soybean stockpile that is expected to approach a billion bushels this summer, the largest inventory ever.
Farm income plummeted with the collapse of a seven-year commodity boom in 2013. The USDA forecast of $66.3 billion in income last year was half of the 2013 peak and a reflection of persistently low commodity prices. The CBO outlook, focused on farm subsidy costs, said corn would stay below $4 a bushel for the decade to come and soybeans would not top $9 a bushel until 2023. The last time corn and soybean prices were that low for an extended period was the early to mid 2000s.
By contrast, wheat farmers can expect farm-gate prices of $5.10-$5.15 a bushel in coming years, said CBO. Prices would be better than the the aftermath of the commodity collapse but well below the halcyon levels of the boom, when the season-average price for wheat was a record $7.77 a bushel in 2012/13, boosted by drought in the United States and strong global demand for food. Corn and soybeans also set records in 2012/13 of $6.89 a bushel for corn and $14.40 for soybeans.
The trade war with China has driven down U.S. soybean prices while ballooning the soy stockpile to four times its usual size, aided by record-large harvests. Formerly, China bought 1 in 3 bushels of U.S. soybeans. Exports volume has been slow to recover.
Farmers will plant far more corn than soybeans this year — 93 million acres vs 83.5 million acres — after a virtual tie at 89.1 million acres in 2018, when China was an eager customer. With normal weather and so-called trend-line yields, the corn crop would be 15.1 billion bushels, the second-largest on record, and soybeans would total 4.15 billion bushels, the fourth-largest ever. The 2019 corn crop would sell for an average $3.75 a bushel, compared to $3.60 a bushel for the 2018 crop. Soybeans would fetch an average $8.23 a bushel during the 2019/20 marketing year, compared to $8.60 this marketing year.
The CBO based its forecasts on crop and market conditions in late 2018 and discussions with experts inside and outside of government. The USDA, which took part in the CBO discussions, also projects a strong shift to corn from soybeans although it differs on the details. For example, the USDA baseline, released in November, says corn and soybean plantings will be 1 million acres apiece smaller than CBO forecasts and USDA projected better prices.
In its outlook, the CBO says corn, soybean and wheat growers will take advantage of the new farm policy law to switch decisively to the traditionally designed Price Loss Coverage subsidy from the insurance-linked Agriculture Risk Coverage subsidy. PLC has better protection against sustained low prices. The 2018 farm law gives farmers the first opportunity in five years to change enrollment between ARC and PLC.
To see CBO’s baseline for USDA farm programs, click here.