By Robert Pore

Uncertainty in the general economy continues to drive the agricultural market outlook in a midyear baseline from the University of Missouri Food and Agricultural Policy Research Institute (FAPRI).

“For most U.S. crops, market prices have declined from last year’s peaks but remain well above pre-2007 levels,” said Pat Westhoff, senior economist and co-director of FAPRI.

According to the U.S. Department of Agriculture, Nebraska statewide average corn prices were down $1.92 per bushel in July compared to July 2008; soybean, down $3 per bushel; sorghum, $4.68 per hundredweight; hogs, $13.50 per hundredweight; and steers and heifers, $16.50 per hundredweight.

“On the livestock side, the baseline shows recovery in 2010 for meat and dairy prices but depends on general economic recovery and continued reduction of supplies,” said Scott Brown, FAPRI livestock economist.

Westhoff said lower petroleum prices have reduced production costs. Those lower lower prices also reduced demand for biofuel., which lowers demand for corn and soybeans, major sources of those fuels.

The mid-August FAPRI baseline is a limited updating of the 10-year baseline released in March 2009. The agricultural commodities outlook changed markedly since the completion of the FAPRI long-term baseline, Westhoff said.

Brown said a worldwide recession led to weak domestic and international demand for many U.S. agricultural products. That weak demand, he said, occurred at the same time the farm sector faced production costs exceeding historical averages.

According to the USDA, the average total farm production expenditures when up from $332,914 to $350,633 from 2007 to 2008.

“Hog farmers and dairy producers are enduring a prolonged price squeeze,” Brown said. “Some have used all of their equity and have tapped all of their credit.” Price recovery for meat and milk requires continued growth in consumer demand. In response to low prices, both sectors are reducing what was record production.

In the updated FAPRI baseline, prices for barrows and gilts average $57.59 per hundredweight in 2011, up from $42.82 projected for 2009.

In dairy, the all-milk price average goes from $12.47 per 100 pounds in 2009 to $16.37 by 2011.

But Brown cautions that as the economy recovers, demand for agricultural products increases, raising prices. At the same time, demand and prices for oil also increase.

Oil prices, which hit $145 per barrel leading into the recession, are projected for 2009-10 to average $61.31 per barrel. By 2015, the end of the baseline, the price rises to $94 for West Texas intermediate crude, according to FAPRI.

For outlook on petroleum prices and macroeconomic assumptions, FAPRI economists rely on IHS Global Insight Inc. a private group.

Based on the oil price rise, ethanol prices at Omaha are projected to increase from $1.65 per gallon this marketing year to $1.76 in 2010-11 and to $2.09 by 2015.

Corn prices for this marketing year are projected at $3.47 per bushel, down from $4.05 last year. By the end of the shortened baseline, prices are back at $3.98.

Corn plantings continue to rise through the baseline from 88.5 million acres next year to 90.4 million acres in 2014. Added acres come largely from cotton and sorghum plantings.

Soybean acres remain stable, going from 77.9 million acres next year to 78 million acres in 2014.

Soybean prices, projected at $9.44 per bushel for this marketing year, decline to $9.12 next year, then rise steadily to $9.74 by 2014.

In the cattle sector, Brown said the outlook depends on where you are in the supply chain. Unlike hogs, where production is often coordinated, the cow-calf, backgrounding and feedlot operations remain separate.

“Feedlots have been bleeding red ink for a long time,” he said.

The baseline projects price recovery for fed cattle based on a declining to steady supply. Fed cattle projected at $85 per hundred this year will rise to $93 in 2010 and $98 in 2011. All are based on Nebraska direct sales.

Feeder steers at Oklahoma City are projected at $103 per hundred this year, followed by $115 in 2010 and $123 in 2011.

The 11-page 2009 baseline update is available at http://www.fapri.missouri.edu.