We probably have too much wheat acreage. With U.S. wheat demand coming in between 2.15 and 2.2 billion bushels per year, wheat acreage needs to decline to around 50 million acres for production and demand to balance. The USDA forecast has stocks holding mostly around 750 million bushels. U.S. wheat prices fall to between $5.50 and $6.00 per bushel for most of the forecast period. So we have corn, soybean and wheat acreage all declining over the next couple of years and staying low through the rest of the decade.
USDA sees a bigger CRP program. The size of the Conservation Reserve program declined by 2.5 million acres at the end of fiscal 2012 and most people expect further declines in the coming years. A lot of the land currently enrolled in the CRP was planted to wheat before entering the program, and further shrinkage of the CRP would make even more land available for wheat production. The USDA forecast shows the Conservation Reserve Program actually increasing in size from 2013 to 2022. At the end of the USDA’s forecast the CRP totals nearly 32 million acres. Both the Senate and the House farm bill proposals put forward in 2012 would have capped the CRP at 25 million acres. The policy climate would have to change before an increasing CRP would seem plausible.
Net cash farm income declines from recent highs. USDA updated the forecast for 2012 and 2013 farm income this week, but the new figures are not part of the long-range projections. The new data shows slightly higher next cash farm income for 2012 and 2013 than indicated in the long term forecast, but not different enough to have any significant impact. According to the USDA’s long range forecast, the peak in net cash farm income is behind us. Net cash farm income was about $135 billion in 2012, but that measure declines to $103 billion by 2017. Then there is a modest rebound in net cash income to $105.4 billion by 2022.
Surprisingly cash expenses also decline early in USDA’s forecast. Cash expenses are put at about $316 billion in 2013, falling by about $20 billion to $297 billion in 2015. Then expenses turn higher reaching $346 billion at the end of the period. Crop cash receipts decline early in the forecast, then recover and end about where they are now. Livestock cash receipts increase from about $170 billion in 2012 to $195 billion in 2022. While we are starting at a very high level, the USDA forecast calls for some significant declines in real net income over the next decade.
The CBO Baseline Forecasts from USDA and CBO are generally similar. The Congressional Budget Office (CBO) released their 10-year baseline last week. Overall, the USDA long range forecast and the CBO baseline are similar. The following table shows some of the key forecast variables from the two government reports.