Some of us want to know what the future holds and are quite satisfied with tomorrow’s weather forecast. Others want to know what the future holds so they can calculate what the farm economy will be like in 10 years. That is not just guessing grain and livestock prices, but factoring in world population growth, energy demand, and the ebb and flow of world trade. Each year the USDA’s Economics Research Service issues its 10 year forecast and this past week made its predictions for the 2016-17 fiscal year. What did they see in their crystal ball?

USDA’s 10 year baseline is fascinating reading if you have the time. For farmers beginning their career, it provides an opportunity to merge your business plan with the USDA’s projections. For farmers at the mid-point in their career, the projection offers some good targets for you and your business partners to consider. We’ll get to the farm level view in a moment, but first we’ll look at the high altitude view from USDA

Economic overview:
• World economic growth will be 3.4%, and US GDP will be sustained at 3% growth.
• Population growth will slow to 1.1% with developing countries having 82% of the world’s population
• The US dollar will remain strong and attract foreign investment.
• Oil prices will drop slightly during the first half of the period, then increase but less than the inflation rate. Prices will be driven by Asian demand.

Farm policy:
(USDA applies the 2002 Farm Bill into the projection period because of the uncertainty of what will be included in the 2007 Farm bill.

Bio-fuel production:
• Ethanol production will reach 12 billion gallons by 2017
• Bio-diesel production will increase to 700 mil. gal. by 2012, then level off.

Beef trade:
• Japanese and South Korean markets will gradually reopen to US beef
• Canadian cattle imports will remain restricted to control BSE

Farm economic factors:
• Net farm income will average $67 bil. over the projection period supported by ethanol.
• Export values will grow, helped by world demand for bio-fuels.
• Food prices will grow less than the inflation rate, and consumers will continue to eat more away from home.
• The rapid expansion of bio-fuel production will change the traditional price relationships of grain. That means soy oil will be at a premium value to soy meal, and cattle feed will cost less than swine and poultry feed because of ruminant use of distiller’s grains.
• US commodities will remain strong in world trade, but will have competition from South America, Canada, Russia, and Ukraine. A strong dollar will restrict US farm trade, but trade will be strong enough to help farm income.

Now, what does all of that mean to you, your farm family, and your farm business? We’ll ask Iowa State Outlook Specialist Bob Wisner. His bi-weekly newsletter, Iowa Farm Outlook should be part of your reading assignment for the week. He makes a number of observations focused on the next five years, rather than the entire 10 year spectrum covered by USDA:

1. Corn acreage will jump to 86 mil. for 2007, and then slowly increase to 90 mil. by 2011. However, demand will leave only a 2 week supply annually at the end of the marketing year through 2011.
2. Wisner is concerned that USDA’s projections for corn acres are insufficient, and based on them, he says exports or livestock production will have to be scaled back as a result of ethanol demand.
3. Corn prices will average well into the $3 range, and even with increasing costs of production, revenue per acre will be above $300 after operating costs are paid.
4. Wisner expresses concerns also about the profitability of ethanol plants which have to buy higher priced corn, and sell ethanol into the volatility of the oil market. He says some plants on the drawing board may be unable to be built or begin operation under the current economic parameters.
5. Soybean acreage will decline from 75 to 71 mil. acres in 2007, then slowly erode to 69 mil. through 2011. The 10 week carryover next August will decline to 4 weeks annually at the end of that 5 year period. Soybean prices will remain in the low $7 range and provide about $200 per acre revenue after operating costs are covered.
6. Comparing corn income with soybean income, USDA’s projections show $90 to $160 more revenue per acre after variable costs are paid. An 1,800 acre farm with a 50-50 corn and soybean rotation could increase income $81,000 to $144,000 after variable expenses are paid by planting 100% corn.
7. Wisner says corn yields are expected to increase 14% through 2017, but soybean yields increasing only 6.8%. That parallels the expectation that the better producing land will be the primary corn production areas and the lesser producing land be dedicated to soybean production.
8. Wisner also expresses concern about the close relationship between supply and demand with corn and soybeans vis-à-vis the variability in Cornbelt production. He says drought years and flood years can reduce production to the point of great price volatility and insufficient demand for export and livestock needs.

Summary:
USDA’s 10 year projection for the agricultural economy shows steady growth in crop and livestock production, trade, bio-fuels and farm income. Iowa State’s Bob Wisner says the projections offer choices for many Cornbelt farmers with regard to acreage. While prices for both corn and soybeans are expected to remain at relatively current levels for at least the next five years, farmers will have to judge how many soybean acres will be dedicated to corn production, given the additional income opportunities.