Ten years from now is a long time away, but it you are running a multi-million dollar business (3,000 acres of corn and soybeans qualifies) that should be your planning horizon. Your ten year plan should address cropping and livestock enterprises, expansion plans, and transition plans. Late last week Chairman Colin Peterson of the House Agriculture Committee proposed switching to a ten year Farm Bill. Earlier in the week the USDA released its ten year forecast for the agricultural economy. Are you in step?

It is easy to say that is too far ahead to plan, but if some reasonable forecasts for commodity prices, production costs, and government programs are on the table for your use, maybe it is time to assemble your own ten year program. The assistance from USDA came with the qualifier that uncertainties exist, but that is part of the plan. We can only give you a glimpse of the projection here, but the entire report is available. You may not pay much attention to the global barley trade, but the future of agriculture depicted by the USDA baseline report will help you frame your operation for sustainability.

The USDA economists had to make certain assumptions. Those included:
• Continuation of farm policy and the recent biofuels mandates
• World economic growth about 3.5%, and population growth about 1.1%
• Depreciation of the dollar through 2011, then slow appreciation to 2017
• Decline in oil prices through 2013, then increasing faster than inflation

Macroeconomics: Steady world economic growth will help commodity prices and consumer demand says USDA. The current high level of farm income will decline slightly but remain strong in the ten year period, helped more by the market than government programs. Export values remain high, helped by a low dollar value. Domestic consumer demand continues with food prices increasing less than the inflation rate. Strong economic growth in China and India will be important in the global economy, with Asia claiming 30% of it by 2017. Population growth will be important in food and biofuel demand. Global inflation is expected to average 3% through 2017, managed closely by central bankers. The crude oil market will fluctuate, but prices will be pressured by alternative sources of energy, including a growing supply of renewables.

Crops: Ethanol production will impact about every aspect of the crop sector. Global economic growth and new uses for crops will support increased consumption and keep prices at high levels. Global economic growth will also create more demand for meat and support trade in feed grains. However, domestic ethanol production and the need for soybeans as well as corn will restrain the potential for increased export business. Corn remains king, in terms of acreage, exports, livestock feed and ethanol demand. The CRP will be reduced by lack of re-enrollment, but then expand maximum levels with higher rental rates reflecting demand for acreage. Planted acreage will reach a high of 252 million in 2008 and level off to 244 million through 2017. Corn will capture more than 90 million acres, soybeans will fade to under 70 million, and wheat acreage will rise to meet short term demand then fall to 56 million for the long run.

By 2017 ethanol will convert 5 bil. bu. into 14 bil. gal. Federal and state incentive programs will be important, as will high oil prices. High values of corn will push some domestic and foreign livestock to wheat for feed as corn exports fall due to high prices. Wheat exports will be steady, but fade from competition approaching 2017. When ethanol consumption of corn levels off, export business returns from the world demand for feed grains. Higher per acre profits for corn will cause soybean acres to fade, subsequently soybean exports fall and Brazilian exports rise. The domestic crush will remain strong from the demand for both meal and oil. Corn prices rise through 2010, then decline as ethanol production slows, but the growth in exports will keep stocks low and prices will remain historically high. Soybean stocks will remain at low levels and prices will remain high through 2017. Wheat prices initially decline as stocks rebuild, then less acreage and lower stocks will push prices higher.

Livestock: Production adjustments will result from high prices for corn and soybean meal. Profits will be under prior levels with resulting declines in production. After that period of adjustment, the livestock sector will grow from domestic and export demand accompanied by higher prices and profits. Consumption will decline from price increases, then increased production will be met with lower prices and increased consumption. High grain prices will initially depress beef production, but the herd will be rebuilt with higher slaughter weights. Pork production will initially decline from high feed costs, and then grow as prices recover. The linkage with the Canadian hog industry will grow increasingly complex. Poultry production will initially decline from high feed prices, but will recover with the help of increased exports. Meat will benefit from export demand, but beef exports to the Orient grow only slowly. Strong pork demand will come from the Pacific Rim, helped in part by growing economies in India and China. Recent high profits for dairies will spark more production through 2009, but curtail as profits decline. Efficiencies continue as output increases. Milk prices will rise, but not keep up with inflation.

Farm economy: Domestic and global economic growth will support gains in consumption, trade, and prices, helped both by population growth and the biofuel industry. Market prices will rise along with cash receipts, but higher production costs and lower government payments will keep income in check to some degree. Net farm income will remain strong, climbing from $90 billion in 2008 to over $100 billion in 2017. Exports values will be high in the latter part of the period, but domestically, food prices will rise less than the rate of inflation. Program payments to farmers will fall to less than $10 billion through the balance of the ten year period as a result of high commodity prices, and will be less than 3% of gross cash income for most of the next ten years.

Production expenses: Production cost increases will be less than the inflation rate through 2017. The greatest increase in cost will be in the area that includes rent paid to landowners, interest, and labor costs. With the help of stable oil prices, the cost of manufactured goods will increase moderately through 2013, then increase more rapidly as higher oil prices prevail. As corn prices stabilize the cost of farm produced inputs, such as feed and seed will also stabilize.

Trade: Globally, increased grain consumption has eroded stocks and raised prices. World economic growth will move consumers toward diversified diets from basic foods; but population growth will occur where staples are the primary foods. US exports will be significant, but challenged by competitors even with the low value of the dollar. The US will continue to be the world’s primary source for corn, and China will settle in as just a corn importer. Food demand will support vegetable oil prices at a high level, but biodiesel will compete for it. Wheat will continue to be a volatile-priced commodity because of weather-related production problems. The value of US farm exports will grow to over $100 billion by 2017, helped by the value of the dollar, but primarily driven by growing economies and hungry populations with money to spend. Recent high commodity prices have strengthened bulk export values, but in the long run the value of high valued exports such as meats and horticultural crops will prevail. The agricultural trade balance will begin the ten year period with a $15 billion surplus, but that will erode by 2017 as imports increase and bulk exports remain flat.

Summary:
The best guess of USDA is for a strong agricultural economy for the next ten years. A growing world economy and population will demand food, meats, and biofuels from the US marketplace. Competition among grains for limited acreage will keep prices high in the wake of the demand. Moderation in oil prices will help the world economy grow, but also keep production costs in check for much of the next ten years. Farm income will grow with the help of biofuels, demand for grain and livestock, and a healthy export trade.