USDA Economic Reports of Interest: Biofuels, Fertilizer Prices, Farm Income Forecast
May 8, 2009
Growing Crops for Biofuels has Spillover Effects
by Scott Malcolm and Marcel Aillery for the USDA Economic Research Service Online magazine, Amber Waves.
- Federal mandates for biofuel production promote expanded crop acreage and shifts in cropping patterns and livestock production due to higher prices for corn and other grain crops.
- An increase in the extent of agricultural land in production and intensity of input use increases the potential for environmental degradation.
- Research that improves crop productivity and conversion efficiency, as well as conservation practices like no-till and buffer strips, could lessen the environmental impacts of biofuels.
- Cultivated cropland is expected to expand in all U.S. regions but one, as producers respond to higher crop prices. ERS research suggests that the largest increases in cultivated cropland will likely occur in the traditional corn-producing regions of the Corn Belt (1.6 million more acres in 2016), Northern Plains (1.5 million acres), Delta (540,000 acres). and Lake States (510,000 acres). These estimated changes are conditional on model assumptions regarding corn yield growth, energy costs, ethanol conversion rates, and other factors affecting ethanol productivity and returns.
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Recent Volatility in U.S. Fertilizer Prices
by Wen-yuan Huang, William McBride, and Utpal Vasavada for the USDA Economic Research Service Online magazine, Amber Waves.
- Strong domestic and global demand, coupled with tight supplies and low inventories, contributed to record fertilizer prices in early 2008.
- Softening global fertilizer demand, disruptions in U.S. farmer application of fertilizers, an increase in fertilizer imports, and tighter credit for purchasing inputs contributed to the decline in fertilizer prices in late 2008.
- Fertilizer price volatility affects the profitability of corn and small grains, where fertilizer accounts for a relatively large share of production costs, compared with that for soybeans and cotton.
- Between January 2007 and mid-2008, corn prices increased 100%, wheat prices rose 83%, and soybean prices were up 112%. At the same time, growth in worldwide biofuel production diversified the use options of grains, sugarcane, soybeans, and rapeseed and contributed to higher prices for biofuel feedstocks, particularly corn.
- High agricultural commodity prices encouraged producers to expand total crop acres, adjust the mix of crops planted, and increase fertilizer use to boost yields, all of which led to increased global fertilizer demand.
Farm Income Expected To Decline in 2009
by Mitch Morehart and James Johnson for the USDA Economic Research Service Online magazine, Amber Waves.
- Over the last several years, the U.S. agricultural sector has enjoyed economic prosperity not seen since the 1970s. Robust world economic growth stimulated food demand, biofuels emerged as a major alternative use for corn and soybean production, and the reduced value of the U.S. dollar helped expand exports to record levels.
- Based on USDAï¿½s early forecast, after 7 consecutive years of increases, U.S. cash receipts from crops are expected to drop by 10 percent from the record level reached in 2008. But at $162.4 billion, crop receipts in 2009 would still reflect the second highest level ever attained.
- After registering one of the largest annual increases in 2008, U.S. farm production expenses are forecast to decline in 2009 but would still be 9 percent higher than they were in 2007. Most of the reduction stems from lower energy prices forecast for 2009, reducing farm expenses on fuels, oils, and fertilizer.
- As a result of these developments, the 2009 outlook for all three measures of farm sector income - net value added, net farm income, and net cash income - is down.
- Despite the economic downturn, the U.S. farm sector's balance sheet is expected to remain sound in 2009.