U.S. corn acreage is expected to climb back to around 90 million acres after a short-term shift to wheat and soybeans, according to USDA Agricultural Projections to 2017, released last month. The report also projects strong prices for most crops due primarily to ethanol demand.
The long-term projections are prepared by USDA's Economic Research Service and are significant because they are used for preparing federal budget estimates. The projections are not a forecast, but a long-run scenario based on assumptions about farm policy, weather, economy and international developments. Provisions of the 2002 farm bill are incorporated into the projections.
According to the report, projected plantings for the eight major field crops in the United States will increase from about 246.5 million acres in 2007 to over 252 million acres in 2008 as the market responds to current high prices prompted by strong demand and lower global supplies of oilseeds and wheat. Although plantings for these eight crops then fall, they level off near 244 million acres during most of the projection period, as continued high prices and producer net returns hold land in production.
Corn, wheat, and soybeans account for about 88 percent of acreage for the eight major field crops. In 2008, there is some shift in the cropping mix toward wheat and soybeans and away from corn due to short-term global supply reductions for those crops. However, longer-term shifts move acreage back to corn, reflecting the growth in domestic corn-based ethanol production that raises corn prices and producer returns.
Consequently, after 2008 corn acreage remains above 90 million acres through 2017 as the expansion in ethanol production increases corn demand, prices, and net returns.
Assuming that a tax credit for blenders of ethanol and a 54-cent-per-gallon tariff on imported fuel ethanol remain in place, expansion in the ethanol industry is projected to exceed 12 billion gallons annually by 2010 and 14 billion gallons by 2017.
The projections have almost a third of the U.S. corn crop being used to produce ethanol by 2009-10. Nonetheless, by 2017, ethanol production will represent only about 8.5 percent of annual gasoline use in the United States.
Corn prices continue to rise through 2009-10 as increases in ethanol production strengthen corn demand. As ethanol expansion slows, stocks rebuild and corn prices decline. But in the longer-run, corn stocks-to-use ratios fall slowly as gains in corn used for ethanol production outpace production. Consequently, farm level corn prices remain historically high (around $3.60 per bushel by 2017).
Projections have soybean plantings declining to less than 70 million acres after 2008 reflecting more favorable returns to corn production.
U.S. soybean exports fall below 900 million bushels as competition from Brazil strengthens and U.S. acreage shifts to corn to support ethanol production. Consequently, the U.S. market share of global soybean trade declines from 35 percent in 2007-08 to about 21 percent by 2017.
With competition from corn keeping soybean acreage lower, stocks remain relatively constant, the stocks-to-use ratio falls, and farm level soybean prices remain high (a little above $9 by 2017).
USDA projects declining wheat prices from current levels as higher production rebuilds stocks. Wheat acreage and stocks decline in the latter years of the projections, pushing farm level wheat prices up (around $4.60 by 2017). Wheat acreage falls back to about 56 million acres in the longer-run.
For cotton, the projections have domestic mill use at less than 40 percent of its 1997-98 level. U.S. upland cotton exports are projected to decline in 2009-10 from the previous 2 years. Under the projection, exports then grow moderately, accounting for about 80 percent of U.S. cotton production through 2017.
Growth in the textile industry in China is expected to slow from the rapid expansion of recent years, reducing growth in China's raw cotton imports. With global trade growth slowing, gains in U.S. cotton exports after 2009-10 keep the U.S. cotton trade share at about one-third, down from 41 percent in 2003-04 and 2004-05.