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ACRE information to be provided during Ag Show: USDA releases latest 10-year economic projections

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WILLMAR -- Farmers, farmland owners and anyone else interested in learning about the new Average Crop Revenue Election program will have two opportunities to do so during next week's Willmar Ag Show at the Willmar Civic Center.

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The seminars, presented by myself, will take place at 1:30 p.m. March 10 and again at 12:30 p.m. March 11.

While not all the details regarding the new Average Crop Revenue Election program have been released by Farm Service Agency officials in Washington, many of the basic provisions that farmers need to understand before formulating any decisions regarding participation will be provided during the seminars.

Average Crop Revenue Election is a new revenue-based "safety net" option that was authorized by the 2008 farm bill. While participation is optional, once farmers and farmland owners elect to participate, the decision becomes irrevocable for the remaining years of the farm bill, which continues through the 2012 crop year.

During years of reduced revenue, farmers could receive greater compensation under Average Crop Revenue Election than the Direct and Counter-cyclical Program. However, in return for the opportunity of greater compensation, farmers will see a reduction in other program benefits, most notably a 20 percent reduction in their direct or "guaranteed" annual payment.

Each year, the U.S. Department of Agriculture releases its 10-year economic projections for our nation's food and agricultural sectors. The projections are based upon a set of assumptions that take into account present economic conditions and current farm policies.

One of the primary uses of USDA's long-term economic projections is to provide farmers and industry officials with a "baseline" database from which to analyze the impacts that policy changes could have on U.S. agriculture.

When arriving at its long-term projections, two of the biggest overriding factors were the global economy and the future of our nation's ethanol industry.

In its projections, USDA concluded that near-term weakness in the global economy will diminish the demand growth for crops over the next several years. However, the assumed return to steady global economic growth during the later years of the projection period will result in a more favorable overall demand for crops.

In terms of ethanol production, USDA is projecting that the expansion of our nation's ethanol industry will continue. However, smaller gains in corn-based ethanol are expected, largely reflecting moderate growth in overall gasoline consumption in the United States.

By the end of the projection period, or 2018, USDA expects that ethanol production will account for about 35 percent of our nation's corn usage and that corn-based ethanol production will exceed 9 percent of the annual U.S. gasoline consumption.

These projections assume that both the blenders' tax credit and the 54-cent-per-gallon tariff on imported ethanol fuel will remain in effect.

In terms of which crops are expected to see notable increases or decreases in acreage during the projection period, USDA recognizes that farmers' planting decisions are largely influenced by the expected net return of a crop.

Despite the numerous factors that can influence planting decisions, USDA anticipates a gradual shift to corn away from other crops. This assumption is based on expected favorable producer returns associated with continued strong demand for domestic corn-based ethanol and increasing export sales.

Following a decline in 2008, corn acreage is expected to increase to 90 million acres by 2011 and remain at or above that level over the remainder of the projection period.

Regarding price levels, USDA is projecting that farm-level prices for corn, wheat and soybeans will fall from their recent high levels; however, prices are projected to remain historically high.

Corn prices are expected to initially fall from their highs in 2008/2009 as the increase in ethanol production slows and corn supplies increase. In the longer run, corn prices are projected to remain higher than their pre-2006 levels due to continued demand for corn to produce ethanol and increased growth in feed use and exports.

Although net farm income is expected to initially decline from the highs of 2007 and 2008, it will remain historically high and rebound to near-record levels in the final years of the projection period.

For consumers, U.S. retail food prices are expected to increase more than the general inflation rate through 2011, especially in the case of meats. But then food prices should return to their long-term history of rising less than the general inflation rate for the remainder of the projection period.

Wes Nelson is executive director of the USDA Farm Service Agency in Kandiyohi County.

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