Cobank Sees Some Drought Relief, Hope For 2013 Markets

Economic growth for ag after the Drought of 2012 labeled 'subpar'

Published on: Apr 22, 2013

Use of feed, priced so high many expected to see substantial reductions in protein markets, actually fell  only 2 % in the 2012-13 crop year, a new CoBank report finds.

That's because herd downsizing was held at a minimum, as meat prices rose, according to the Denver-based bank's "Subpar Economic Growth, Drought Relief, and Upbeat Crop Prospects" report in its latest Quarterly Rural Economic Review.

Key points of the report follow:

•Drought conditions improved in March, and grain and oilseed markets reacted with optimism.

•Impact of the 2012 drought continues to be felt in old crop grain and oilseed markets, however, with rationing the dominant theme for the latter half of the 2012-13 crop year.

Grain markets started the year with new optimism, but uncertainly mounts with concern over drought conditions in production regions.
Grain markets started the year with new optimism, but uncertainly mounts with concern over drought conditions in production regions.

•Pork and poultry industries avoided liquidations.

•New Zealand and Australia drought has hurt dairy production there, which may provide new opportunities for U.S. sales abroad.

•If the 2013-14 crops fail to reach potential and prices persist at current levels, the animal protein and dairy industries will need to scramble to realign operations.

Looking at the world market, CoBank says the world economy continues to rely on China and emerging markets as the main growth engines for new trade.

In the U.S., ag markets are vacillating between the reality of current low stocks and expectations of abundant future supplies due to record South American harvests, and the potential for U.S. bumper crops this fall, adds CoBank.

In corn, the market has been defined by two very different scenarios, according to the co-op bank.

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Domestically, corn demand has been very strong for animal feed, as  poultry and hog producers have maintained production in anticipation of a stellar 2013 harvest. On the other hand, export market is characterized as "extremely weak," as overseas orders for U.S. corn are on pace to fall to a 41-year low.

Wheat has remained generally bearish, CoBank adds. Despite poor crop conditions in hard red winter wheat areas, prices have been falling steadily since autumn.

For beef, cattle markets began 2013 with a tight inventory and compressed-to-negative margins, particularly for packers and feeders.

Dairy experienced a rough first quarter this year, with class III prices down precipitously in January and leveling off in the $17-$17.40 range through mid-March. Continued high feed prices, slower-than-expected contraction in the cow herd, higher production per cow, disappointing year-end exports and sluggish demand in the late-2012, early-2013 period have caused  depression in the industry.

Sugar prices are likely to continue slipping, CoBank believes, as 2012-13 production is estimated at a record 9.16 million tons.

Among fruits, nuts and vegetables, some niches are doing better than others, CoBank reports. But the industry faces costly new U.S. Food $30,000 to implement, while smaller operations may face a $13,000 cost.

Input costs for ag this year could see some relief in fertilizer prices, which the bank expects will "abate slightly." USDA, notes the bank, projects a 5.8% increase in total farm production expenses this year, driven mostly by prices rather than volume used, based on the outlook for fewer total planted acres in 2013.

Post-Drought Livestock, Range And Pasture Insight. No single group of producers has been more impacted by the 2012 drought than those who raise livestock. Download our FREE report, 5 Post-Drought Strategies For A Better 2013.