Commodities Report: USDA Forecasts Strong Crop Yields
Grain farmer margins fell to multi-year lows in 2015, which was anticipated to lead to smaller grain crops this year. However, that has certainly not been the case. The weather has been nearly ideal for the domestic corn and soybean crops. And the USDA corn and soybean crop ratings for early September were some of the best in the last 40 years. Consequently, the USDA is estimating corn and soybean acreage yields and total crop sizes to be records. Despite the smallest wheat acreage in nearly 50 years, the U.S. wheat harvest is larger than 2015 due to record yields. Thus, the grain markets have fallen to multi-year lows with the total index recently declining to its least expensive level since the spring of 2007. Protein and dairy farmer margins have improved with the decline in feed prices. And with expectations of relatively engaging feed markets anticipated in 2017, it should encourage solid protein and dairy output expansion, tempering any price inflation. The USDA is currently forecasting beef, pork and chicken production to expand rather impressively next year, outpacing consumption growth. The available per-capita protein supply in 2017 is projected by the USDA to rise 1.3 percent, matching its biggest level in 10 years. Dairy output next year is likely to expand as well. All of this being said, history suggests that the greater risk in a lot of these markets is to the upside, which signals that there are likely to be a few market-supportive surprises during the next year. We are particularly concerned around the cheese and nonfat dry milk markets. International prices for both have been on the rise as of late, which would alter the trade advantage domestic dairy buyers have experienced for the last several months. And let’s not forget that grain farmer margins remain poor, which makes the 2017 crops especially susceptible to weather challenges.
David Maloni is commodity consultant for American Restaurant Association Inc., a food commodity research, forecasting, consulting, and contract risk management organization founded in 1996 specifically advising the US restaurant and hotel industry and supply chain.