The Ukraine war and unfavorable weather have helped push prices of many farm commodities to record or near-record levels. Under a series of plausible assumptions, those high prices may not last.
This week, our institute released our updated outlook for agricultural markets. We took into account information available in mid-August about the market situation and used our economic models and judgment to develop projections for the next five years.
There are a lot of reasons that farm product prices have increased over the last two years. Poor growing conditions reduced this year’s soybean crop in South America and summer grain crops in Europe and this country. The war in Ukraine has limited exports by a major trading country.
Consumer food demand has been strong. For meat and many other food products, consumers have maintained or even increased the amount they purchase, in spite of sharply higher retail prices.
As a result of these and other factors, we project record annual average prices for wheat and cotton harvested this year, and near-record prices for corn and soybeans. Hog, cattle, milk and poultry prices are all up this year as well.
The future, of course, is uncertain. Even the size of this year’s crops remains unclear, with markets swinging from day to day based on the latest weather forecast. Farmers do not know for sure which crops they will plant next year, let alone how much they will harvest.
So, our projections rely on a long series of reasonable, but uncertain, assumptions. Just returning to trendline yields in 2023, for example, would result in more production of many crops, putting downward pressure on prices.
The war in Ukraine is likely to limit production again in 2023, especially for fall-planted crops like wheat. Resumption of shipping from some of Ukraine’s ports, however, provides at least some hope that the country’s exports of wheat, corn and sunflower products could eventually recover, even if military conflict continues.
On the other hand, farm input prices have increased sharply this year as well. That reduces net farm income and may limit the normal supply response of farmers to high commodity prices.
Still, putting all the pieces together, it seems more likely that farm product prices will decline in 2023 than that they will increase. For example, we project a price of $6.34 per bushel for the corn crop harvested this year, but $5.22 for next year’s crop and even lower prices in subsequent years.
The story is similar for other crops—soybeans, wheat and cotton are all likely to see price declines in 2023. Lower crop prices mean lower feed costs for livestock producers, and that could contribute to lower hog and poultry prices in 2023 as well.