Net farm income is projected to be relatively stable from 2006 to 2015, after declining from historically high levels in 2004 and 2005, according to USDA's latest 10-year agriculture baseline projections released Friday.
Overall farm cash receipts increase through the projections due to growing domestic use and export demand as well as increases in agricultural commodity prices. Rising production expenses and lower government payments, however, offset gains in cash receipts and other sources of farm income.
With government payments declining, the agriculture sector relies increasingly on the market for more of its income. Cash receipts represent more than 89% of gross cash income at the end of the projections, up from about 85% in 2005. Net farm income projections average about $54 billion annually for the next decade, compared with $48 billion in the 1990s. Stable net farm income assists in asset accumulation and debt management. The debt-to-asset ratio falls moderately in the projections, continuing a generally declining trend since the mid-1980s.
The value of U.S. agricultural exports rises in the baseline as steady global economic growth and stronger world trade lead to gains for U.S. agricultural export volumes and higher commodity prices. High-value product exports continue to grow in importance.
Increases in U.S. consumer income and demand for a large variety of foods underlie growth in U.S. agricultural imports. Imports of processed foods are expected to continue growing in importance. Consumer food prices are projected to rise less than the general inflation rate.
U.S. remains competitive in world trade
Overall, the U.S. agricultural trade balance is projected to show a small surplus through most of the baseline, although it will remain lower than in the past two decades.
Population and income are two important factors underlying global demand for food and agricultural products, world trade and U.S exports.
With population growth in the world continuing to slow in the projections compared with previous decades, income growth will become a relatively more important factor underlying strengthening food and agricultural demand. Economic growth in developing countries is especially important because consumption of food and feed are particularly responsive to income growth in those countries, with movement away from staple foods and increased diversification of diets.
Increases in global demand for food and agricultural products provide the foundation for gains in agricultural trade and U.S. exports. The United States will remain competitive in global agricultural markets, although trade competition will continue to be strong.
Overview by crop area
Corn used to produce ethanol in the United States more than doubles the 2004/05 level by 2015/16. This increase reflects the Renewable Fuel Program of the Energy Policy Act of 2005, large ongoing ethanol plant construction, and economic incentives provided by continued high oil prices. Increased feeding of distillers dried grains, a coproduct of dry mill ethanol production, helps meet growing livestock feed demand. Thus, feed use of corn rises only slowly in the projections.
Growth in the food use of wheat is projected to be somewhat slower than the rate of population increases, reflecting dietary adjustments by some consumers to smaller overall portions, including lower carbohydrates.
Domestic soybean crush growth is largely driven by increasing demand for domestic soybean meal, mostly because of rising feed demand for expanding meat production. Domestic demand for soybean meal is tempered somewhat by a rising volume of co-products from ethanol production.
Higher grain prices reduce returns to U.S. meat producers and slow production gains. Higher levels of per capita meat consumption are projected, with poultry accounting for a larger share of the total. While consumer expenditures on meat increase, they represent a declining share of disposable income.
Productivity gains are expected to boost milk output per cow and total milk production throughout the projections. Milk cow numbers are expected to decline after 2006 at a relatively slow pace as increasing specialization of dairy farms over time makes exit rates lower than in past decades.
Mill use of upland cotton in the United States falls through the projection period as apparel imports by the United States continue to increase, reducing domestic apparel production and lowering the apparel industry's demand for fabric and yarn produced in the United States.
Cotton consumption and textile production are projected to increase in countries where labor costs are low, such as China, India, and Pakistan. China is the largest importer of cotton in the world. Although China's cotton imports are expected to grow more slowly than the rapid gains since 2001, these increases account for the gains in global cotton trade in the projections. The United States continues as the world's leading cotton exporter, reflecting its large production capacity and its reduced domestic mill use of cotton as textile imports continue to grow.
U.S. meat exports benefit from stronger foreign economic growth in the baseline. Although U.S. beef exports to Japan and South Korea are projected to gradually rebuild, total U.S. beef exports do not return to the levels attained prior to the U.S. case of bovine spongiform encephalopathy in 2003.
Canada continues to be a strong competitor with the United States in pork exports to Pacific Rim nations and Mexico. Canada is also the major supplier of live hog imports by the United States. Brazil is a major pork exporter. However, the presence of foot-and-mouth disease limits Brazilian pork exports to some markets, such as Japan and South Korea.