FAPRI forecasts falling prices for producers
Unfavorable weather, the Russian invasion of Ukraine, avian influenza and a host of other factors resulted in high commodity prices, high farm production costs and high consumer food price inflation in 2022.
For 2023, an assumed return to more normal conditions results in projected declines in commodity prices, farm income and food price inflation, according to the latest U.S. Agricultural Market Outlook from the Food & Agricultural Policy Research Institute at the University of Missouri.
The outlook summarizes baseline projections for agricultural and biofuel markets using information available in January 2023. Based on forecasts by S&P Global analytics firm, U.S. and world economic growth slows in 2023 and consumer price inflation drops to 2% by 2024. The baseline reflects current policies, meaning it incorporates programs that had been enacted prior to January 2023 but does not reflect any subsequent policy changes.
The full report is available online at fapri.missouri.edu, but here are some key results:
- If weather conditions allow crop yields to return to trend-line levels in 2023, prices for corn, soybeans, wheat, cotton and many other crops are likely to fall. Over the next 10 years, average nominal prices are much lower than they have been in 2022-23, but they remain above the average of 2017-18 to 2021-22.
- Higher fertilizer, fuel and feed costs contributed to a sharp increase in farm production expenses in 2022. A smaller increase is projected in 2023, and lower prices for some inputs result in reduced production costs in 2024 and 2025.
- Cattle, hog, poultry and milk prices all increased in 2022. High feed costs, drought and avian influenza limited supplies, and consumer demand generally continued to be strong.
- Federal spending on farm-related programs was above the historical norm between 2019 and 2022, largely because of short-term, ad hoc programs. Projected farm-related outlays decline in fiscal years 2023 and 2024.
- Crop losses in 2022 result in high budgetary costs for the crop insurance program in fiscal year 2023. Crop insurance accounts for 45% of projected spending on major farm-related programs over the next decade.
- Net farm income reached a record level in 2022, as sharply higher crop and livestock receipts more than offset reduced government payments and increased production expenses. Projected net income declines in 2023 and 2024 as receipts and payments fall.
- Farm asset values have increased with land prices in recent years, and another increase is projected for 2023. Given assumptions of the outlook, lower farm income and high interest rates restrict further increases in farm real estate values in subsequent years.
- Consumer food price inflation jumped to 9.9% in 2022 as farm commodity prices rose, labor and other costs increased, supply chain problems continued, and consumer demand was strong. Price increases have slowed in recent months, and the projected annual increase in consumer food prices is 4.4% in 2023 and under 2% in 2024.
In a related report, Missouri’s overall net farm income is predicted to fall by a net 14% in 2023 compared to a 19% national decrease, following a record-setting 2022, according to the spring Missouri Farm Income Outlook report from MU’s Rural and Farm Finance Policy Analysis Center (RaFF).
One factor that could explain this projected drop in farm income is the state’s livestock receipts, which were impacted by the nationwide drought that reduced cattle inventories and sale of live animals, according to RaFF interim director Scott Brown.
That full report with all its datasets can also be accessed online at ruralandfarmfinance.com/publications.
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