Composite Production and Price Forecast

By John Lawrence, Iowa Farm outlook, Iowa State University. For the past 25 years extension agricultural economists have been surveyed in mid-July regarding their forecast of production and prices for selected commodities.
calendar icon 1 August 2007
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Ron Plain, University of Missouri and David Miller, Iowa Farm Bureau have conducted the survey in recent years and reported the results of this year’s forecast at the American Agricultural Economics Association meeting in Portland, Oregon in late July. The results of the commodities of interest to Iowa are reported in the tables below.

On average meat, milk, and egg production is expected to increase in 2007 and 2008 (Table 1). Beef is the only commodity expected to show a year-over-year decline. Note that this production increase is expected in spite of the higher corn prices. Has ethanol caused higher food prices due to forcing farmers out of business? While expansion may be less that previously expected, it doesn’t look like higher feed prices have triggered liquidation in animal agriculture yet.

Table 1. Forecast of Percent Change in Year-Over-Year Meat, Milk and Egg Production by Quarter and Year
  Q4 Q1 Q2 Q3 Q4    
Commodity 2007 2008 2008 2008 2008 2007 2008
Beef -1.0 -0.7 -0.3 0.5 -0.3 -0.5 0.0
Pork 2.6 1.6 1.2 1.7 0.1 2.2 1.3
Milk 1.4 1.5 1.7 2.0 1.9 1.1 1.8
Egg 0.3 0.7 1.2 1.4 1.4 -0.4 1.2
Turkey 2.5 1.7 1.9 2.0 1.3 2.6 2.0
Broiler 2.5 2.6 1.7 2.1 1.7 -0.1 2.0

Table 2 reports the composite price forecasts. Choice steers are predicted to set record high prices in 2007 and again in 2008. Feeder cattle prices will not be record levels because of the higher cost of gain. Live hog prices are forecast to average near $49/cwt live in both 2007 and 2008. Given the current forecast of corn and SBM prices, pork producers should remain at or above breakeven for the next two years. If that holds it would be five years in a row without losses. Class III milk prices are at record high levels in the summer of 2007 and are expected to post year-over-year higher prices through the second quarter of 2008. Turkey, broiler and egg prices are expected to work lower over the coming year.

Table 2. Composite Forecast of Livestock, Milk, and Poultry Prices by Quarter and Year
  Q4 Q1 Q2 Q3 Q4    
  2007 2008 2008 2008 2008 2007 2008
Choice steers, NE $/cwt 93.77 94.13 95.17 90.60 92.33 92.33 93.34
750-800# steers, OKC $/cwt 107.15 104.62 105.85 105.85 103.54 105.96 104.58
Live Hogs 51-52% $/cwt 46.21 47.10 51.46 50.55 46.39 48.82 48.86
Milk, 3.5% Class III $/cwt 18.41 16.67 16.17 16.07 15.89 17.42 16.21
Choice Lambs, San Angelo $/cwt 84.60 84.31 85.44 87.50 85.50 84.74 85.81
Eggs, Grade A Large Cent/coz 95.20 99.20 87.80 88.00 92.50 95.50 91.60
Turkeys, Eastern Cents/lb 85.10 71.90 76.60 79.10 81.60 78.90 77.30
Broilers, 12 city area Cents/lb 75.70 74.70 76.40 75.30 73.70 76.80 75.00

Crop production and prices were also forecast. Table 3 summarizes production, ending stocks, and prices for the 2007 crop year. Corn production is expected to be 12.8 billion bushels, 22% higher than the 2006 crop and a larger ending stock on August 31, 2008 than August 31, 2007. US farm price is expected to average $3.17/bushel. Soybean production is forecast to decline 34% to 2.1 billion bushels and ending stock drop to their lowest level since 2004. US farm prices are expected to average $7.88.

Table 3. Composite Forecast of Production, Ending Stocks (Billion Bushel), and Price ($/Bushel)
  2007 Production Ending Stocks US Average Farm Price
Corn 12.826 1.361 $3.17
Soybeans 2.107 0.248 $7.88
Wheat 2.631 0. 420 $5.18

Grain economists also were asked to forecast the closing futures prices for the nearby contract at three different points in time (Table 4). CBOT December corn futures are expected to close at $3.35 in December, March futures at $3.52 in March and July futures at $3.65 in late June. These are all lower than the closing prices at this writing on August 9. Current soybean futures are all higher than the Table 4 values, but the January futures are close to the 12/3/07 expected price.

Table 4. Composite Forecast of Nearby Closing Futures Prices on Selected Dates
  12/3/2007 3/3/2008 6/30/2008
CBOT Corn $3.35 $3.52 $3.65
CBOT      
Soybeans $8.84 $8.87 $8.76
KC Wheat $6.02 $6.14 $6.14

How should a producer use this information? It is the average forecasts from several agricultural economists made in mid-July. Conditions and opinions may have changed since then. However, research on this composite forecast from earlier years has shown it to be better than a representative single forecaster and, in the case of livestock, better than USDA forecasts. The composite also predicted better than futures for steers, but not barrows and gilts. Thus, this information is one more piece of information to use for marketing or cash flow planning.

It should be noted that Dr. Robert Wisner won the Premier Crop Forecaster Award again in 2007. Dr. Wisner took top honors in 2006 and six times in the 25 year history, more than any other crop forecaster. He has also won five awards as the top forecaster of the general economy division, and he has even been the top livestock forecaster one year. Congratulations Dr. Wisner!!!

August 2007

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