The U.S. government is projecting that annual net farm income in the U.S. will average $67 billion US over the next decade, driven in part by soaring profits for corn producers because of ethanol industry demand.
In a 110-page projection of agricultural conditions to 2016 published by the U.S. Department of Agriculture, economists project the price of corn will remain above $3 per bushel through the next decade after fetching $2 just last year.
And while production costs will increase slightly, the department projects that net per acre returns for corn producers after variable costs are paid will soar from $132 in 2004-06 to $247 this year and $336 by 2009-10 before leveling off in the $320 range.
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In response, farmers should increase corn acreage by almost 10 million acres to 90 million acres by 2010.
As well, the department expects that higher feed prices will drive down livestock sector profits, prompting producers to reduce herds at least until 2011.
It also projects that wheat prices will increase from 2005-06 levels but not as dramatically.
From an average $3.42 per bushel last year, USDA economists say the wheat price will range between $4.25 and $4.55 for the next decade. Net per acre returns after variable costs will increase from $63 last year to an average $100 over the next decade, according to the projection.
It means American farmers will receive more of their income from the market and less from the government, according to the USDA.
“With lower government payments, the agriculture sector relies on the market for more of its income and the share of income provided by the government falls,” said the analysis. “Government payments, which represented more than eight percent of gross cash income in 2005, account for less than four percent during most of the projection period.”
However, the department cautions that projecting conditions 10 years into the future is a risky business.
It requires assumptions – that the new farm bill will look much like the current farm bill and that the American border will remain closed to older Canadian cattle, among others – and it does not anticipate shocks in weather, the economy or international trade.
“The projections are not intended to be a departmental forecast of what the future will be but instead a description of what would be expected to happen under a continuation of current farm legislation with very specific external circumstances,” it said.
The department says that under the ethanol mandate, 7.5 billion U.S. gallons (28.4 billion litres) of ethanol will be in the American energy system by 2010 and more than 12 billion gallons (45.4 billion litres) by 2016.
