An agricultural outlook: A peek into 2023 and beyond
March 16, 2023 | Kriss Nelson
Agricultural economists from different sectors gathered to discuss the agricultural outlook, and what it means for crop and livestock prices, input costs and government payments at the 2023 Commodity Classic held last week in Orlando, Florida.
Inputs and income
Record farm income last year came with concern.
“We saw some real anxiety with rising input prices,” says Seth Meyer, chief economist for the U.S. Department of Agriculture (USDA). “Looking into 2023, input prices continue to rise, some are declining, but they are not returning to pre-2022 levels.”
Farm income is forecast to drop sharply from 2022 but could still be above average.
“I think we are set up for above-average farm income for 2023, but it will come with a combination of falling receipts, falling government payments and input prices, which are still rising,” Meyer says.
Renewable diesel has been driving the outlook for soybeans and has surpassed biodiesel as the more significant player in the game.
Announced renewable diesel plants would produce seven billion gallons of renewable diesel production.
“These announcements are not shovels in the ground; it doesn’t mean it will happen,” says American Soybean Association Chief Economist Scott Gerlt.
One hiccup is the EPA’s proposed Renewable Fuel Standard (RFS) for the next three years.
The EPA’s proposed rule sets Renewable Volume Obligation (RVO) for biomass-based diesel for:
- 2023: 2.82 billion gallons
- 2024: 2.80 billion gallons
- 2025: 2.95 billion gallons.
According to this proposed rule, the 2.95 billion-gallon RVO for 2025 would be nearly 8% below 2022 supply levels.
“In 2026, there is almost no growth. That is not a strong incentive to bring these plants online. There is much uncertainty,” says Gerlt. “The final announcement from the EPA comes June 14, and that is going to be a day to see soybean prices move, and that will set the growth for the industry for the next three years.”
Although soybean oil is the main feedstock for nearly half of the biodiesel produced, that is not the case for renewable diesel.
“Just 14% of soybean oil is currently being used in renewable diesel production,” says Gerlt.
Animal fats, cooking oil, grease, and other ingredients comprise most of the feedstocks used.
“The reason for that is a lot of it is being blended in California,” says Gerlt. “They are paying a higher payment for those other feedstocks.”
The soybean industry considers these feedstocks a waste feedstock, so they cannot scale up; it’s a byproduct. We can scale up soybeans.
“We have the potential for a lot of capacity. The industry has announced a 30% increase in crush capacity. That is unprecedented. It’s driving much excitement and a lot of optimism for the forecast in soybeans.”
Factors affecting global livestock markets
Erin Borror, vice president of market intelligence for the U.S. Meat Export Federation, says the international livestock markets are seeing some shifts.
“Essentially, we see the price flip on the live animal side and this indicates our competitive position in the world,” she says. “Europe was cheaper in pork last year. Usually, we are the more competitive producer. Now that relationship is flipping again.”
Europe’s pork production was down nearly 6% in 2022, and their December hog inventory was down another 5%.
“We are looking at smaller pork production out of our biggest competitor’s market,” says Borror. “Their prices are increasing, which gives us more opportunities in the U.S. to export – especially in the Asian market while we still see strong opportunities in Latin America.”
Projections in U.S. cattle inventories show smaller production in 2023, but that doesn’t mean we won’t remain competitive.
“Internationally, our customers don’t have alternatives,” says Borror. “We are the producers of Choice and Prime beef for the world.”