On Thursday, the USDA released their annual "baseline projections" report, which provides projections for the agricultural sector through 2018. The USDA noted that "prospects for the agriculture sector in the near term reflect adjustments to the global economic slowdown and the U.S. recession," but in the longrun should "reflect continued demand for biofuels" and "once the world economies recover from the current slowdown, steady economic gains support increases in consumption, trade, and prices."

Overall we didn't see any major surprises in the report. We saw the upward revision of long-term ethanol use as bullish. Ethanol is forecasted to be roughly 33 percent of the corn crop in 2009/10 compared to 30 percent in 2008/09. The USDA lowered its long-term estimates for U.S. farm income but expects it to remain historically strong and be near record levels in 2018.

We put some highlights of the baseline report below below:

Economic Growth

Population

• Growth in global population is assumed to continue to slow to an average of about 1.1 percent per year over the projection period compared with average annual rates of 1.7 percent in the 1980s and 1.4 percent in the 1990s.
• Population gains in developing countries along with increased urbanization and expansion of the middle class are particularly important for the projected growth in global food demand. Population in developing countries, in contrast to that in more developed countries, is dominated by a younger population cohort with larger and increasingly more diverse food consumption.

The Value of the U.S. Dollar

• The U.S. dollar is assumed to strengthen moderately over 2010-18. Nonetheless, the dollar’s low level relative to the early 2000s remains a facilitating factor in projected gains in U.S. agricultural exports.

Oil Prices

• Crude oil prices are assumed to rebound in 2009 and average about $60 per barrel.

U.S. Agricultural Policy

• Under the 2008 Farm Act, the maximum acreage enrolled in the Conservation Reserve Program (CRP) was reduced from 39.2 million acres to 32 million acres, beginning on October 1, 2009.

U.S. Biofuels

• The ethanol tax credit was reduced to 45 cents per gallon from 51 cents per gallon under the 2008 Farm Act, starting in calendar 2009.
• By the end of the projection period, ethanol production accounts for about 35 percent of corn use, and corn-based ethanol production exceeds 9 percent of annual gasoline consumption.

- Colvin