Production Journal

Farm Journal, Mar 1, 2008 by Roger Bernard

USDA Outlook Forum Projections Stir Debate

The release of acreage, production, use and carryover projections at USDA's annual Outlook Forum always seizes the market's attention. This year's data kindled debate and discussion surpassing any we've seen recently.

For starters, new USDA Chief Economist Joe Glauber delivered updated acreage projections as part of his presentation. He said the eight major crops (corn, sorghum, barley, oats, wheat, rice, upland cotton and soybeans) will span 252.3 million acres, up 6.8 million acres from 2007.

Glauber projected 2008 corn planted acres at 90 million, soybeans at 71 million, wheat at 64 million and all cotton plantings at 9.5 million.

On the surface, the projections aren't overtly shocking numbers. But the markets reacted to the figures this year unlike they have in some time. What happened?

Look into the future. Each year, USDA releases long-term projections a week prior to the Outlook Forum. These projections use the November Supply/Demand Report as their starting point and are compiled in December and January. The George W. Bush administration also uses the projections to help draft a fiscal year 2009 budget. Even though the long-term projections are slightly outdated and conditions have changed since the figures were compiled they serve a purpose--to be a discussion starting point for the future of agriculture.

So, when Glauber predicted 90 million corn acres during the Outlook Forum, the non-ag press and many market participants were quick to assume USDA pumped up its corn acreage projection by 2 million acres in just a week because the numbers released prior to the forum used a corn-planted area of 88 million. That wasn't the case, but that didn't stop corn futures from declining that Thursday morning.

Friday, Feb. 22, USDA analysts released their 2008/09 balance sheets for major crops based on a current outlook for the season ahead. The figures pegged a wheat crop of 2.33 billion bushels, with wheat carryover at 538 million bushels, an increase from the 237- million-bushel forecast for the 2007/08 marketing year. Prices are forecast to average $7 per bushel.

A corn crop of 12.81 billion bushels translated into a carryover of 1.243 billion bushels, a decrease from the 1.438 billion forecast for 2007/08. The season-average cash price forecast of $4.60 per bushel surpasses the $4 forecast for 2007/08. Driving the strong demand base: Continued expansion of ethanol production, using 4.1 billion bushels of corn in 2008/09.

A soybean crop of 2.950 billion bushels didn't add to total supplies as the projected beginning stocks for 2008/09 of 160 million bushels are well below the supply of 574 million bushels expected to be on hand to start the marketing year. The result: Just 9 million bushels more carryover to end the 2008/09 marketing year and a farm-gate price of $11.50 per bushel.

The weaker dollar is helping U.S. livestock producers on the export front, but they must contend with a slowing U.S. economy. "Returns for livestock and poultry producers will fall during the year, and, as a result, production growth for all red meat and poultry slows later in the year," said Joel Greene, USDA analyst. "Prices for cattle, hogs and poultry in 2008 are expected to decline. But at retail, prices for beef and pork are expected to average higher, although broiler and turkey prices should be slightly lower."

While these commodity outlooks didn't paint major supply and demand shifts, they did foster hallway chatter at the Outlook Forum. The most commonly heard question: "What if we have a drought this year?" In other words, the lofty price forecasts by USDA were met with concern--optimism with a dose of fear.