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Strong expansion of corn-based ethanol production in the projections affects virtually every aspect of the field crops sector, ranging from domestic demand and exports to prices and the allocation of acreage among crops. Additionally, steady U.S. and global economic growth assumed in the projections provides a favorable setting for other uses of field crops, which, following the initially large ethanol expansion, supports longer run increases in consumption and trade and keeps prices at historically high levels.
Although tempered somewhat by higher feed prices, global livestock production rises in the projections in response to growing incomes and demand for meats, which supports gains in world consumption and trade for feed grains. Following a moderate depreciation of the U.S. dollar in the first several years of the projections, the dollar (U.S. agricultural export-weighted basis) is then projected to appreciate. The strengthening U.S. dollar, combined with trade competition from Brazil, Argentina, and the Black Sea region, constrains U.S. exports for some crops. Additionally, strong domestic use of corn due to increased ethanol production and the shift of land to corn from soybeans limit U.S. exports in the early years of the projections, particularly for corn and soybeans.
Assumptions for field crops reflect provisions of the Farm Security and Rural Investment Act of 2002 (2002 Farm Act), which is assumed to continue through the projection period. However, with high prices projected, benefits from price-sensitive programs are reduced. For example, marketing loan benefits and counter-cyclical payments for feed grains are minimal, even accounting for stochastic factors. High prices also lead to a reduction in area enrolled in the Conservation Reserve Program (CRP) through 2011. The CRP is then assumed to expand toward its 39.2 million acre maximum, reaching 37 million acres in 2017. CRP rental rates will increase as farmers’ bids for participation in the program rise to reflect higher crop prices.
Projected plantings for the eight major field crops in the United States increase from about 246.5 million acres in 2007 to over 252 million 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.
Plantings of different crops are influenced by expected net returns. Net returns are determined by market prices, yields, and production costs, with returns augmented by marketing loan benefits when prices are low.
- Corn, wheat, and soybeans account for about 88 percent of acreage for the eight major field crops over the projection period. 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.
- Following a decline in 2008, corn acreage increases and remains above 90 million acres over the remainder of the projections as the expansion in ethanol production increases corn demand, prices, and net returns.
- Soybean plantings decline to less than 70 million acres after 2008 reflecting more favorable returns to corn production.
- Wheat plantings rise sharply in 2008 in response to high prices resulting from tight global supplies. Wheat acreage falls back to about 56 million acres in the longer run due to competition from other crops.
Strong Ethanol Expansion Projected
Ethanol production in the United States has increased rapidly over the past several years, from less than 3 billion gallons in 2003 to over 6 billion gallons in 2007. Expansion in the industry is projected to continue, particularly over the next few years, exceeding 12 billion gallons by 2010. Although more moderate growth is projected in subsequent years, over 14 billion gallons of ethanol are produced annually by the end of the projection period. These projections assume the tax credit available to blenders of ethanol and the 54-cent-per-gallon tariff on imported ethanol used as fuel remain in effect. Provisions of the Energy Independence and Security Act of 2007 are not reflected in this report since the projections were completed prior to enactment of that legislation (see box, Energy Independence and Security Act of 2007).
Most ethanol production in the United States uses corn as the feedstock. The large ongoing expansion results in almost a third of the corn crop used to produce ethanol by 2009/10, remaining near that share in subsequent years. Nonetheless, even by 2017, ethanol production (by volume) represents only about 8.5 percent of annual gasoline use in the United States.
Market adjustments to the increased demand for corn to produce ethanol extend well beyond the corn sector. Movements in relative prices trigger supply and demand adjustments for other crops. Higher feed costs affect the livestock sector, slowing increases in or reducing production of all meats over the next several years.
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Energy Independence and Security Act of 2007
The Energy Independence and Security Act of 2007 was enacted on December 19, 2007, after projections in this report were completed. Although the projections do not reflect the new energy act, major features of the legislation that relate to the Renewable Fuel Standard are illustrated in the following charts. Also, general qualitative effects are highlighted below.
The first chart shows the new Renewable Fuel Standard (RFS) from the 2007 Energy Act. The overall standard calls for total renewable fuel "sold or introduced into commerce in the United States" to reach 36 billion gallons by 2022. Within this standard, ethanol derived from corn starch is to reach 15 billion gallons. The remainder is to consist of "advanced biofuel" with specific volumes designated for cellulosic biofuel and biomass-based diesel.
The second and third charts compare the corn-based ethanol and biodiesel projections in this report with those designated in the RFS of the 2007 Energy Act. Ethanol derived from corn starch in the RFS reaches 15 billion gallons in 2015, about 2 billion gallons higher than projected for 2015 in this report. With the RFS for ethanol derived from corn starch holding at that level beyond 2015, the gap between it and the 2008 long-term projections narrows to about 1.5 billion gallons by 2018. The RFS for biomass-based diesel reaches 1 billion gallons in 2012 and "shall not be less than" that amount in later years. This compares with soybean-oil based biodiesel production of about 600 million gallons in the 2008 long-term projections.
Although a complete quantitative analysis of the effects of the 2007 Energy Act’s RFS for ethanol derived from corn starch and biomass-based diesel is not presented here, general qualitative effects would include:
- Increased demand for corn and soybean oil raises prices for those commodities. Soybean prices would be higher as well.
- Higher commodity prices raise overall acreage planted to crops, with a greater combined share of the total going to corn and soybeans. Acreage planted to competing crops, such as cotton and wheat, would be expected to be lower, raising their prices.
- With a greater share of output going to biofuels, higher crop prices would lower other uses of crops, including exports and domestic feed use of feed grains. In contrast, soybean meal would be more plentiful as increased soybean crush for biodiesel production would raise soybean meal production as well.
- Higher feed prices would lead to further adjustments in the livestock sector than those presented and discussed in the Livestock chapter.
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Domestic corn use grows throughout the projection period, primarily reflecting increases in corn used in the production of ethanol. Global economic growth underlies increases in U.S. corn exports after 2011/12.
- Large increases are projected in corn used for ethanol production over the next several years. Relatively high prices for crude oil contribute to favorable returns for ethanol production, which combine with government programs to provide economic incentives for a continuation of the ongoing expansion in ethanol production capacity.
- Feed and residual use of corn declines in the initial years and then rises only moderately as increased feeding of distillers grains, a coproduct of dry mill ethanol production, helps meet livestock feed demand.
- Gains in food and industrial uses of corn (other than for ethanol production) are projected to be smaller than increases in population. Consumer dietary concerns and other changes in tastes and preferences limit increases in the combined use of corn for high fructose corn syrup, glucose, and dextrose to about half the rate of population gain.
- U.S. corn exports fall over the next several years as global corn trade declines from the record 2007/08 level and as more corn is used domestically in the production of ethanol. After growth in ethanol production in the United States slows, U.S. corn exports rise in response to stronger global demand for feed grains to support growth in meat production.
- Additionally, U.S. corn exports to Mexico are boosted because of the elimination of tariffs on corn imports from the United States. This shifts some U.S. exports to corn from sorghum and corn products, which already had tariff-free status.
- Strong ethanol demand in the projections pushes U.S. corn stocks lower than current levels.
Overall demand in the U.S. wheat sector grows very slowly through the projection period.
- Domestic demand for wheat reflects a relatively mature market. Food use of wheat is projected to show moderate gains, generally in line with population increases.
- Feed use of wheat, a lower-value use of the crop, rises in the initial years of the projections from the levels of recent years as higher corn prices encourage increases in wheat feeding. As price relationships between wheat and corn stabilize, wheat feeding levels off after 2010/11.
- U.S. wheat exports are steady over the projections period as competition continues from the European Union (EU), Canada, Argentina, Australia, and the Black Sea region. In particular, wheat prices are projected at levels high enough that the EU can export wheat without subsidies, thus permitting higher EU exports. Consequently, the U.S. market share declines through the projections to under 20 percent by 2017/18. Market shares for Australia, Argentina, the EU, and the Black Sea region increase, while the market share for Canada continues to decline.
- Wheat stocks rebound from low 2007/08 levels as higher prices encourage additional acreage and production. Then in the later years of the projections, stocks decline as wheat acreage falls.
Domestic use of soybeans continues to rise slowly. U.S. soybean exports fall, however, as acreage declines and as more soybeans are processed domestically.
- Longrun growth in domestic soybean crush is mostly driven by increasing demand for domestic soybean meal for livestock feed. Some gains in crush also reflect increases in domestic soybean oil demand for biodiesel production through 2013/14. Increases in export demand for soybean oil and soybean meal also add to crush demand.
- 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 at the end of the projections.
- Although U.S. exports of soybean oil and soybean meal increase modestly, the United States loses market share in global trade of these products against the strengthening competition from South American producers.
- Following a decline in 2007/08 from historically high stocks, a rebound in soybean acreage in 2008 keeps stocks from falling further. After 2008, shifts in acreage to corn from soybeans keep soybean stocks from rebuilding and the stocks-to-use ratio declines.
Projected farm-level prices for corn, wheat, and soybeans reflect, in part, movements in U.S. stocks-to-use ratios.
- Corn prices continue to rise through 2009/10 as increases in ethanol production strengthen corn demand. As ethanol expansion slows, stocks rebuild somewhat and corn prices decline. Then in the longer run, corn stocks-to-use ratios fall slowly as gains in corn used for ethanol production and moderate export growth outpace increases in production (resulting from generally higher acreage and gains in yields). Consequently, corn prices resume moderate growth and remain historically high.
- With competition from corn keeping soybean acreage lower, stocks are held relatively constant, the stocks-to-use ratio falls, and soybean prices remain high throughout the projections.
- Wheat prices decline from current levels in the early years of the projections as higher production facilitates the rebuilding of stocks. As wheat acreage declines in the latter years of the projections, stocks decline and push wheat prices up.
Continued expansion in domestic food use of rice is projected over the next decade. U.S. rice exports show moderate increases.
- Domestic use of rice is projected to grow somewhat faster than population growth, although well below the rates in the 1980s and 1990s when per capita use rose rapidly. Imports of aromatic varieties of rice from Asia account for a growing share of domestic use in the projections.
- U.S. rice exports are projected to increase at a moderate pace after 2008/09, as the U.S. price difference over Asian competitors falls, increasing U.S. competitiveness in global rice markets. Exports of rough rice to Latin America are expected to continue increasing, and account for most of the U.S. export expansion.
- Stocks of rice initially fall, but then gradually increase after 2008/09 as rice acreage rises.
- Global rice prices are projected to increase 2.5 to 3 percent per year, exceeding $10.50 per hundredweight (rough basis) at the end of the projection period. These price increases largely reflect a tightening global stocks situation due to slow yield growth and little ability to expand area in most producing countries. This effect is partially offset by declining global per capita disappearance, largely due to dietary shifts away from staple foods in Asia as incomes rise.
- U.S. rice prices rise through the projection period, reaching about $12.50 per hundredweight by 2017. The U.S. price difference over Asian competitors declines, but still remains relatively high at $2.00 at the end of the projection period.
U.S. mill use of upland cotton declines in the projections while upland cotton exports rise after 2009/10.
- At the end of the projection period, domestic mill use is projected at less than 40 percent of its 1997/98 level. Textile and apparel import quotas that had been established under the Multifiber Arrangement (MFA) were eliminated at the start of calendar year 2005. As a result of this and other factors, apparel imports by the United States increase through the projections, reducing domestic apparel production and lowering the apparel industry’s demand for fabric and yarn produced in the United States. Some increase in U.S. yarn and fabric exports is projected due to trade liberalization, but the net effect is for declining domestic mill use.
- U.S. upland cotton exports decline in 2009/10 from levels in the previous 2 years that were facilitated by high stock levels. Exports then grow moderately, accounting for about 80 percent of U.S. cotton production throughout much of the projection period.
- Growth in the textile industry in China slows from the rapid expansion of recent years, reducing growth in China’s cotton imports. As a result, world cotton consumption and trade slow as well. 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.
- Cotton stocks decline in the first several years of the projections as some acreage shifts to corn. Beyond 2009/10, cotton acreage increases and stocks rebuild through the end of the projections.
The U.S. sugar price support program includes the loan rate program and marketing allotments as set out in the 2002 Farm Act. Sugar projections for the United States also are strongly interrelated with projections for Mexico. Starting January 1, 2008, there are no duties or quantitative restraints on sugar or high fructose corn syrup (HFCS) trade between the United States and Mexico, in compliance with the North American Free Trade Agreement (NAFTA).
- Use of HFCS by Mexico’s beverage industry is projected to increase beyond current levels, implying a higher exportable surplus of sugar in Mexico. Returns in Mexico from exporting sugar to the United States are projected to be higher than either delivering sugar to domestic food manufacturers for use in sugar-containing-product exports or exporting sugar to other countries at world prices. Over the period from fiscal year (FY) 2009 through 2018, annual U.S. sugar imports from Mexico are projected to average 1.568 million short tons, raw value (STRV), about 15 percent of human consumption of sugar in the United States.
- U.S. sugar imports are projected to exceed the trigger (1.532 million STRV) for suspension of marketing allotments in all years of the projections. U.S. sugar prices are driven down to the minimum level to avoid forfeiture to the Commodity Credit Corporation (CCC). It is assumed that the USDA uses all available measures to reduce CCC program costs. In spite of flat sugar prices, historical growth trends in productivity measures underlying domestic U.S. sugar production projections (sugar per acre, and beet and cane yields) are assumed to continue.
- Long term sugar projections assume that the raw sugar tariff-rate quota (TRQ) is established each year at 1.231 million STRV, the World Trade Organization (WTO) minimum access level. The refined sugar TRQ is established each year at 94,251 STRV. The refined TRQ includes 71,826 STRV of specialty (mostly organic) sugar. Sugar imported under the Dominican and Central American Free Trade Agreement is projected at 121,761 STRV in FY 2009 and increases by 2,237 STRV each year. The yearly raw sugar TRQ shortfall is assumed to equal 70,000 STRV.
- Overall sweetener consumption in the United States is assumed to grow at about the same rate as population. Imports of sugar-containing product are expected to grow faster than population, so per capita consumption of domestically delivered sugar decreases slightly during the projections period.
The total farmgate production value of U.S. horticultural crops for 2007 was $55 billion, with about a third contributed by each of vegetables, fruits and nuts, and nursery and greenhouse crops. The total production value grows by 3.2 percent annually over the next decade, reaching $73.7 billion in 2017.
- U.S. imports of horticultural products (fruit and nuts, vegetables, greenhouse and nursery products, essential oils, beer, and wine) are projected to continue outpacing exports, with net imports expected to increase about $12 billion from 2007 to 2017. The appreciation of the U.S. dollar after 2011 is an important factor affecting trade, slowing export demand for U.S. horticultural products and raising U.S. import demand.
- U.S. horticultural imports are expected to grow by about 4 percent annually through 2017. Imports play an important role in domestic supply during the winter and, increasingly, during other times of the year. Reduced trade barriers offer U.S. consumers increased variety, with freer trade also enhancing global competition.
- The EU is the top source of U.S. horticultural imports, accounting for $9 billion out of a total $32.4 billion in 2007. Mexico is the second biggest source of U.S. horticultural imports ($7.4 billion in 2007) followed by Canada ($3.5 billion). Chile and Brazil are also large sources of horticultural product imports by the United States. Key import commodities include potatoes, tomatoes, bananas, grapes, frozen concentrated orange juice, apple juice, melons, tree nuts (especially cashews), wine, beer, and essential oils.
- U.S. horticultural exports are expected to grow by 3 percent a year through 2017, with the major export markets including Canada, the EU, Mexico, Japan, and Southeast Asia. Exports of almonds, other tree nuts, and noncitrus fruits will lead export growth of fruit and nuts. Exports of fresh vegetables will be stronger than processed vegetables. Exports of wine and essential oils are also expected to increase.
Long-Term Projection Tables
Other Topics in the Online Baseline Presentation
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