Including USDA estimates in market baselines, the University of Missouri's Food and Agricultural Policy Research Institute found that increasing commodity prices will likely keep 2013 corn acreage high, but more favorable weather conditions may drop those prices next year.
FAPRI's baseline models assume continuation of current policy, including the existing farm bill and the Renewable Fuels Standard. FAPRI uses the baseline to understand how changes in policy may affect the farm sector.
The baselines also estimate a 10% reduction in ethanol production for the 2012-13 corn marketing year. Though domestic consumption is expected to decline by 2%, increased imports are expected.
A significant increase in corn price—up $1.85 from 2011-12—is projected for the 2012-13 marketing year. However, corn price is expected to drop from $8.10 per bushel in 2011-12 to $5.20 per bushel in 2012-13, if weather patterns improve.
Soybeans are projected to average $16.27 per bushel this year, which the report notes will reduce crush and exports. This is a 30% increase from the 2011 record. Wheat is estimated to reach $8.42 per bushel.
A companion baseline study prepared by the University of Missouri's Department of Agricultural and Applied Economics found market baselines for livestock and dairy have significantly changed due to higher feed costs.
"Purchased feed expenses in 2013 could very well be three times higher than the 1990-2004 average, and over 70% above the 2007-2010 average, requiring strong growth in output prices for the livestock and dairy sectors to remain profitable," update authors Scott Brown and Daniel Madison report.
Baselines indicate that profits for cattle producers will remain steady in 2012, but many producers cannot act on better prices due to poor pasture quality and higher feed costs as a result of the drought.
MU's predictions for dairy producers reflect similar findings from the most recent USDA farm income projections.
"Given current industry information, it appears milk production will likely fall below year ago levels in the next few months. This baseline update estimates 2013 milk production will fall below the 2012 level by over one billion pounds," update authors write.
Profitability declines are expected to stem from higher production costs and an estimated loss of $3 to $4 against operating costs for every Cwt. produced, the report explains.
Much talk about hard times ahead for hog producers is also supported by MU baseline updates. However, a turnaround is expected in 2014. Report authors say producers will thin the sow herd to bring prices back up.
Finally, consumers will eventually feel a pinch as food price inflation creeps into grocery stores. The report indicates that meat and dairy costs won't increase immediately, but will slowly grow by 5% for meat and 4% for dairy products in 2013. This, however, is quite lower than the 10% Consumer Price Index growth for dairy between 2010 and 2012.
The MU AAE and FAPRI baselines calculate five-year supply and use estimates for corn, soybean, wheat, biofuels, cotton, rice, hay, beef, pork, dairy and poultry.