FAPRI Baseline Update- Higher Prices for Some Commodities and Inputs- August 2022

Earlier this week, the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri released its latest baseline update for U.S. agricultural markets.

In part, the baseline update stated that, “The war in Ukraine and weather‐reduced crop supplies have contributed to higher prices for many agricultural commodities, while higher prices for fertilizer, fuel and other inputs have increased farm production expenses. Projected prices for a range of farm commodities and farm inputs are expected to decline in the years ahead but nominal prices remain high by historical standards.

“This report, based on information available in mid‐August 2022, updates the 2022 FAPRI baseline outlook prepared earlier this year. Crop production in 2022 is assumed to equal the values reported by USDA in its August Crop Production report and macroeconomic assumptions are based on July 2022 forecasts by S&P Global. Current government policies are assumed to continue, and selected provisions of the recently approved Inflation Reduction Act (IRA) are incorporated along with the 2020‐2022 RFS requirements that were finalized in June 2022. The COVID‐19 pandemic is assumed to continue waning and related supply chain disruptions are anticipated to be resolved in the future.”

More narrowly, FAPRI indicated that, “Tight global supplies result in record prices for wheat and cotton and near‐record prices for corn and soybeans. For the 2022/23 marketing year, wheat prices are projected to exceed $9 per bushel, corn tops $6 per bushel, soybean prices are more than $14 per bushel and cotton prices average 96 cents per pound.

“Prices for fertilizer, fuel and many other farm inputs are also up very sharply in 2022.

For example, variable corn production expenses increase by an estimated $164 per acre in 2022.

“Projected input costs moderate in the years ahead, but remain well above the 2021 level.”

The baseline update noted that, “If better growing conditions result in trendline crop yields in 2023 and later years, crop prices could also decline from current levels. In 2023/24, projected average corn prices drop to $5.22 per bushel, wheat falls to $7.11 per bushel and soybean prices decline to $12.36 per bushel.”

With respect to food costs, the baseline noted that,  “The CPI for food is projected to increase 9.0% in 2022. Food‐at‐home prices increase 10.6%, well above the increase in prices of food away‐from‐home for the first time since 2011.

“The increase in the food CPI moderates to 2.3% in 2023, as commodity prices and food marketing costs decline. This still outpaces the 1.7% average annual increase from 2010‐2019.”