2014 commodity outlook for Texas hinges on rainfall, demand

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COLLEGE STATION – Texas A&M AgriLife Extension Service economists recently provided 2014 projections for major commodities produced in Texas, with many pointing to past drought conditions as a key factor in making or breaking a crop.

The Plains region of Texas and part of South Texas were dealt a severe blow in 2013 with drought conditions. However, AgriLife Extension economists say if positive weather patterns develop and lead to periods of timely rainfall, there’s reason for optimism for the 2014 crop year. Livestock markets are also projected to continue to show strength, particularly beef cattle, as inventory levels have yet to recover from lows not seen since the 1950s.

Dr. Mark Welch, AgriLife Extension grains marketing economist in College Station, said 2013 brought record supplies of corn and wheat, but demand remains strong.

“With another year of good growing conditions, look for lower prices,” he said. “But given the strong demand base, look for higher prices on any production concerns.”

Welch said U.S. farmers produced a record corn crop in 2013 of 14 billion bushels.

“In the current marketing year, supply is outpacing demand, resulting in estimated carryover stocks of 1.8 billion bushels,” he said.  “This is twice the level of carryover stocks after the drought reduced crop in 2012.  In response to this buildup in stocks, the season average farm price for corn is estimated at $4.40 per bushel, down from $6.89 last year.”

Looking ahead to 2014, Welch said the demand base for grain remains strong.

“Use estimates are higher in every category: feed and residual, food, seed, and industrial and exports.  The question is whether farmers will switch corn acreage to alternative crops now that prices are near, or in some cases, below the cost of production.”

Meanwhile, cotton prices will be determined by a variety of factors, said Dr. John Robinson, AgriLife Extension cotton economist, College Station.

“The outlook for cotton prices will be determined by a combination of planting and growing conditions for the 2014 new crop, and how much cotton China uses from out of their massive government reserves,” he said.  “If China maintains their reserves at their current levels, cotton prices in Texas may range from the upper 60s to mid-70s (cents per pound). If China were to start auctioning off large amounts of their reserves, then Chinese mills would not have to import as much cotton, leaving more surpluses of cotton in the U.S. that would lower prices another five to 10 cents.”

 

The following are summaries from AgriLife Extension economists in districts across Texas regions:
Plains region, William J. Thompson, AgriLife Extension economist, San Angelo, West Central-District 7:

– Outlook on Grains: “I am expecting a small increase in wheat acres planted for harvest in 2014.  We had some timely showers in the early fall and producers took advantage of that.  Grain and cotton price expectations are down for the coming year. If rainfall patterns return to something closer to normal, I think we will see more interest in cotton. For 2014, that will come at the expense of grain sorghum acres, as wheat is already in.”

- Outlook on Cotton:  “For 2014 there is a mix of factors affecting cotton. The huge stocks being held in China will likely temper any short-term price increases.  Prices have been relatively strong, considering the level of global stocks we have. But as long as those stocks are effectively out of the market channel, the market should maintain current levels in the mid to high $70s range. That price uncertainty and some timely fall rains likely increased fall planting of wheat, some at the expense of cotton acres. Any increase of planted cotton next spring will be at the expense of what few grain sorghum acres we have out here.”

- Outlook on Livestock markets: “I expect to see further contraction of the sheep numbers in 2014. Lackluster prices for three-quarters of the year (2013) and spotty precipitation led to additional reduction of the West Central Texas ewe flock. Prices have improved considerably in the fourth quarter, but many producers had likely sold their lamb crop by then.  Rangelands will need additional, above-average rainfall and time to recover from the effects of this prolonged drought. While I am not expecting to see a large reduction of ewe numbers in 2014, I am not expecting to see any significant growth either. Beef cattle numbers may show minimal increases in 2014. Discussions with county agents and producers indicate that some expansion/reinvestment is being considered. Very strong calf and feeder prices, bolstered by a sharp drop in corn prices, have producers wanting to expand.”

- 2014 General Outlook for Region (weather, yields, other factors): “Soil and range conditions are varied across the region depending on the track of several large storms in 2013.  It has remained pretty dry north and south of that track which moves diagonally (southwest to northeast) across the state. Even those areas that did receive the timely rains have not replaced any subsoil moisture. We did produce some cotton, grain and forage in 2013, but only because of the timeliness of the rains. It will not take much of an extended dry period in 2014 to push the area back into some level of drought category.”

South Texas:
Rob Hogan, associate professor and AgriLife Extension economist, Uvalde, District-10 (plus a portion of District 6 lying along the Rio Grande):

- Outlook on Livestock markets:  “(With regards to prices) beef looks like higher than last year and higher next year than this year. Although the year started out rather droughty, we started getting rains late summer in both District 6 and District 10 and the grass grew like crazy. The calves look like they should be coming off at a good weaning weight for the year and we are going into the winter with good subsoil moisture, so we should have some good grass next spring.”

- 2014 General Outlook for Region (weather, yields, other factors): “ If we continue getting rains through the winter and into spring, it could really be a good year in 2014. I believe that most producers believe that also.”

North Texas:
Blake Bennett, associate professor and AgriLife Extension, District 4-Northeast Texas:

- Outlook on Grains: “Wheat is off to a good start in northeastern Texas. We had good soil moisture for planting, and appear to have come through the most recent cold spell without much damage.  If we can get timely spring rains, we are looking at another year of above-average yields ranging in the 60 to 70 bushel range. Corn is also looking to be sitting quite well with yields coming in about 75 bushels compared to a long term average of 60 to 65.  Pasture conditions are looking good with early rains providing good growth to winter pastures. This provides a good base for cattle producers to be able to make it through the winter months with lower feeding costs.”
Stan Bevers, professor and AgriLife Extension economist, Rolling Plains, District 3-Vernon:

- Outlook on Grains: “The Rolling Plains, the predominant grain is wheat. Wheat planting began in September, which is common for our stocker cattle operators.  Wheat for grain planting ended this month. The Rolling Plains received above-average rainfall for July 2013.  This helped for a month, but September through December has once again been below average. So, for those who planted early, wheat is reasonably holding on. For those who  planted later, wheat is struggling. Moving forward, it all depends on the winter moisture.  For us, we don’t receive a lot of winter moisture, but anything will help. Our spring rains (March, April, and May) will be very important for making a wheat crop for 2014. Planted wheat acres were near average, although canola acres taking the place of some wheat. Estimates are we have about 5,000 total acres of canola in the Rolling Plains. Those who got their wheat established early have put a few wheat pasture cattle out. Wheat is holding up, but moisture is going to be needed if the cattle are going to stay out there. Wheat will quickly be eaten up without additional moisture. For the Rolling Plains, it is always a question as to how much wheat will be: 1) harvested for grain, 2) grazed out by stocker cattle, 3) laid down and baled as hay, and 4) abandoned with insurance collected on it. In most years, we can determine this by wheat and cattle prices, however, with the limited moisture thus far, it is difficult to say.”

- Outlook on Cotton: “This past cotton crop was a mixed bag, with some doing very well and other areas being destroyed for insurance purposes. While we have lost cotton acres prior to the past five years, cotton areas are pretty stable here (albeit at a reduced number of acres).  At this point, I don’t see a lot of change in the cotton acres. Our remaining cotton producers are a pretty staunch group of growers. They will plant cotton next year.  Moisture remains to be seen as pointed out for the wheat.”

- Outlook on Livestock markets: “Our cattle situation is varied across the types of cattle.  First, our cow-calf producers still deal with the drought and most have not even considered restocking or rebuilding their herds at this point. The grass just hasn’t recovered yet, and in some cases, water tanks have not regained enough runoff to supply cattle needs. Further, at the price of replacement cattle, I’m not sure how many are going to be real excited about restocking anyway. The stocker cattle situation was explained in the wheat section. However, a few more issues include the limited number of calves available for grazing and the high cost of buying cattle for grazing.”

- 2014 General Outlook for Region (weather, yields, other factors): “Given all the gloom I mentioned above, one might think that the general outlook is dark and gloomy as well. But given what the Rolling Plains has come through over the past three years, any outlook has to be better than the past. A little moisture has fallen, but we have a long way to go. Records show that 2011 through 2013 (three years), we received two years of rainfall during the three-year period. That’s how far behind we are.”

Steve Amosson, Regents Fellow, professor and management economist, District: 1 – Panhandle:

- Outlook on Grains:  “Large feed grain carryovers nationwide, stagnant ethanol demand combined with a marginally increasing feed demand should cap corn prices in the $4 to   $4.50 price range, making production in the Panhandle marginally profitable at best. Therefore, I expect planted feed grain acreage in the area to fall 5 to 10 percent.

- Outlook on Cotton: Current 2014 projected cotton price for the area is 73 cents. At that price, irrigated cotton appears to be slightly more profitable than irrigated feed grains. Given the lower water requirement of irrigated cotton compared to corn, I expect cotton acreage to increase approximately 10 percent this year in the Panhandle as producers attempt to manage their available irrigation water more effectively.”

- Outlook on Livestock markets: “Profitability of area feedlot operations has improved with falling feed prices and strong fed beef prices. However, they will continue to be under stress because of low inventory numbers due to record low cow herd. The lower feed prices have led to higher calf prices making cow-calf operation profitability rise to the highest level in recent years. This profitability combined with somewhat marginally improving range conditions should lead to some rebuilding of the cow herds in the area where cow inventories had decreased 30 to 50 percent because of the drought.”

- 2014 General Outlook for Region (weather, yields, other factors): “Right now I expect average yields for most crops in the Panhandle. Three-year droughts of record for the area, which occurred in the 50s, were followed in both cases with a normal or above normal rainfall year. Maybe we’ll get lucky again!

“This is going to be a tough year for producers to make a profit even with normal rainfall. It is critical they use a sharp pencil in determining the crop mix they are going to plant and be proactive in marketing their crops when the market offers them the opportunity to price in a profit.”


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