The following report was recently released by the Food and Agricultural Policy Research Institute.

Corn planted acres in 2008 are expected to slip 2 million from 2007, while a 6 million acre rise in soybean area is forecast, according to outlook projections issued by economists with the Food and Agricultural Policy Research Institute. Grain prices are forecast to remain well above pre-2006 levels in coming years, the group said.

Higher prices increase revenues for crop producers but also increase feed costs for livestock producers. Overall, net farm income goes up, some government farm program payments drop and consumers see higher food costs, according to the 2008 FAPRI Baseline Briefing Book delivered to the U.S. Congress and USDA. The independent analysis that projects the agricultural economy for 10 years is requested annually by Congress.

In 2007, high corn prices due to rising ethanol production led to big increases in corn acreage at the expense of soybeans and cotton. This year, corn faces price competition from soybeans and wheat in a "battle for acres." FAPRI expects 2008 soybean acreage to increase about 6 million acres with wheat acreage increasing as well. Corn retreats 2 million acres from its post-World War II high recorded in 2007.

Plantings of 12 major crops are expected to increase 4 million acres in 2008, following a 3 million acre increase in 2007. Most new acres come from double-crop soybeans and wheat, reduced fallow ground and expiring contracts on Conservation Reserve Program acres.

The Consumer Price Index for food rose 4 percent in 2007, more than the CPI for all goods and services. Much of that increase came from rising energy prices, which increased costs all along the marketing chain, including the farm level.

While all components of CPI for food rose in 2007, the dairy, egg, and cereal and bakery goods led the increase. The food CPI is expected to rise 3.7 percent in 2008. However, food inflation increases should slow to 2.5 percent in 2009 and 2.1 percent by 2017. While there is a correlation between farm value of commodities and retail food prices, other factors influence food inflation as well, Brown said. Recent fuel-related costs combined with farm values to push food prices higher.

The biggest change in agriculture is a shift to supplying biofuels, both in corn for ethanol and soybeans for biodiesel. FAPRI reports that trend will continue because of high petroleum prices and mandates in energy legislation. Corn receives major attention in the report. Ethanol demand for corn almost doubled from 2005 to 2007, with nearly 4 billion bushels to be used from the crop to be harvested this fall.

Soybean production dropped sharply last year, with an acreage shift to corn. However, strong domestic and international demand for vegetable oil, caused in part by growing biodiesel production in the United States and Europe, helped reverse that shift.

Wheat prices increased when crop failures around the world led to large exports of U.S. wheat. FAPRI expects wheat exports will drop when foreign crops recover. Projected wheat prices remain higher than in years before 2006, because of higher prices for corn and other crops.

Since a farm bill has not passed Congress, the analysis assumes present 2002 farm bill is extended. Major parts of the outlook are influenced by the Energy Independence and Security Act passed in December 2007, which mandates increased use of ethanol and soydiesel. FAPRI assumes current biofuel mandates, taxes and tariffs remain in place. However, the economists assume cellulosic ethanol mandates will be waived as advances in technology remain slow.

The weakening value of the dollar has increased world demand for U.S. agricultural products. Exports of soybean, corn remain high as prices have increased less in foreign currencies than in dollars. The devalued dollar has not helped domestic livestock producers who face record-level prices for grain and oilseed meal in rations.

Returns for beef producers have declined from the high levels in 2003-05. Cow-calf returns are expected to remain in the red for most of the baseline years. After an increase the last two years, beef cow numbers are projected to decline throughout the baseline.

Hog producers face lower returns. Pork supplies remain high through 2008, despite recent decisions to cut sow numbers. Given expected input costs, hog prices need to average $50-55 per hundredweight to provide historic average returns. FAPRI projects prices of $44 for finished hogs in 2008.

Dairy producers face lower prices after record prices of $19 per hundred pounds for milk in 2007. Strong international demand provides a cushion to an expected decline in milk prices.

Luke Fritz is executive director of the Butler County Farm Service Agency.