The Congressional Budget Office (CBO) released its new baseline projections through 2024. The baseline is used for policy analysis gauging the cost implications of changes in policies. The new CBO baseline includes the impacts of the recently approved farm bill. The system is designed to determine the government outlays – by crop and by program. For this analysis – we summarize the underlying supply and demand forecasts for the major crops.
The CBO baseline for corn is similar to the long range projections released by USDA in February. U.S. corn acreage falls to around 90 million acres and stays near that level through the next decade. This is down from the 96.3 million acres average for 2012 and 2013. Production in 2014 tops 14 billion bushels and rises to 15.3 billion by 2024 due to yields that increase at 2 bushels per acre per year. Demand essentially keeps pace with production from 2015 onward with a substantial increase in exports.
CBO has exports at 2 billion bushels starting next season rising to 2.75 billion by the end of the forecast. Domestic use increases by about 6 percent from 2015/16 through 2024/25. Corn prices dip to $3.90 per bushel this season and then gradually work back to near $4.50 by the end of the period. Ending stocks start out at 2.3 billion bushels in 2014/15 then fall to around 1.85 billion for most of the decade.
U.S. soybean acreage starts at 78.7 million acres this year and edges up to 81.1 million by 2024. CBO did not have access to the recent Prospective Planting survey data when the baseline was put together. Soybean yields rise at 0.5 bushels per acre per year – pushing soybean production to near 4 billion bushels by the end of the forecast.
The CBO baseline shows solid gains in both domestic soybean crush and in exports. Demand increases by about 17 percent from 2014/15 to 2024/25. Soybean ending stocks increase to 255 million bushels in 2015/16 then hold about steady through the rest of the forecast. The increase in 2014/15 may be larger than indicated in the baseline since it appears that soybean acreage will be nearly 3 million acres above the figure CBO used. In general, soybean prices stay close to the $11 per bushel mark through 2018/19, rising to near $11.50 at the end of the forecast.
The wheat sector in the CBO baseline is very stable. Acreage eases down from 56 million acres to 53.4 million and the yield increases at about 0.35 bushels per acre per year. Production in 2024/25 is up less than 3 percent from the level estimated for 2014/15. Exports decline modestly but that is offset by higher food use. Wheat prices are pretty flat, slowly rising from about $5.50 per bushel to slightly less than $6 per bushel in 2024/25. The stocks-to-use ratio at the end of the forecast is 0.238 very similar to the 0.227 level expected for the current crop year.
The CBO baseline indicates weaker prices for cotton over the decade ahead. CBO puts the 2013/14 cotton price at 76 cents per pound and prices fall to less than 66 cents per pound by 2016/17 before rebounding to 70 cents per pound by the end of the forecast. Cotton acreage drops to a low of 9.85 million acres by 2019 but rebounds to 10.1 million acres in 2024. Domestic use for cotton increases by nearly 9 percent over the decade, a significant change from recent trends. The U.S. cotton stocks-to-use ratio stays above 0.30 throughout the 2014/15 through 2024/25 period.
No one has a crystal ball that they can use to see the future. Long range forecasts, by necessity, balance production and disappearance over the long term, otherwise there are unsustainable increases or decreases in stocks. Essentially all forecasts show corn acreage falling below the levels in recent years, even with pretty optimistic forecasts for demand. It is very unlikely that crop markets will turn out to be as stable as indicated in long-range forecasts.
Weather events that cause yields to deviate from trends will cause big changes in stocks and prices. Still, the long range forecasts provide some insights into how many acres of the various crops will be needed to satisfy expected demand.