USDA Predicts a Strong Long-term Farm Economy

Increased demand for biofuels should help long-term growth of the U.S. farm economy, USDA says.

Published on: Feb 15, 2007

Net farm income is projected to be relatively strong during the next 10 years, averaging about $67 billion, according to the U.S. Dept. of Agriculture's Agricultural Projectors to 2016. Increases in corn-based ethanol production provide a major impetus for this strong income projection. Growth in export demand also contributes to increases in agricultural commodity prices and gains in farm cash receipts.

During the next 3-4 years, rapid expansion in global production of biofuels changes the price relationships among various agricultural commodities. Production of all meats slows or declines in the first half of the projections, reflecting higher feed costs and lower producer returns as more corn is used in the production of ethanol. After those productions adjustments, strong domestic demand and some strengthening in meat exports result in higher prices and higher returns, providing economic incentives for expansion in the sector. Prices of poultry and pork in the United States rise relative to the price of beef because cattle can more effectively use the increasing supply of distillers grains, a coproduct of dry mill ethanol production. Corn, needed for broilers and swine, becomes more expensive while distillers grains, used for cattle, become more abundant and relatively less expensive.

U.S. feed use of corn typically accounts for 50-60% of total corn use and the United States typically accounts for 60 70% of world corn exports. Market adjustments to higher prices result in a reduced share of corn used directly for domestic livestock feeding and a lower U.S. share of global corn trade. Corn used for animal feeding declines and represents 40-50% of total use in the projections, while the U.S. share of global corn trade falls to 55-60%. Under current law, tax credits are available to blenders of biofuels equal to 51 cents per gallon for ethanol and $1 per gallon for biodiesel (50 cents for biodiesel made from recycled vegetable oil and animal fats). Without the biofuel tax credits and ethanol tariff, demands for corn and soybean oil to produce ethanol and biodiesel are reduced. For the full report, visit: www.usda.gov/oce/commodity/ag_baseline.htm.  

Source: Feedstuffs