Those involved in agriculture can expect continued volatility in the near future, according to an ag economist and former U.S. Department of Agriculture executive.

"The real story for agriculture is more volatility and more risk," said Terry Barr, senior director of CoBank, during a meeting of the St. Louis AgriBusiness Club.

"Farmers are going to need more working capital," he said. "So we're going to do some restructuring in agriculture around that notion going forward.

"It's going to take more working capital, more emphasis on risk management and less leverage is going to be permitted. That will change the structure of a lot of the ag side."

Denver-based CoBank is a financial services cooperative serving rural America. Barr is based in its Washington, D.C., regional office. The co-op provides financial services to agribusinesses and rural power, water and communication utilities.

Agriculture, along with other industries, will emerge from the current economic crisis facing the United States, according to Barr. But he stressed that the crisis is severe and recovery will not come quickly.

"As far as the U.S. economy goes, on the plus side we seem to have hit bottom," he said. "I think we are in a bit of a rebound, but I think people have to be careful with expectations.

"My guess is you're going to see a rebound in the economy but very mild. You have to think on that two- to two-and-a-half-year range. And you may have to think of that through 2011, not just 2010. This is going to take some time to work out."

Farmers and agribusinesses looking to expand or replace equipment may find the going tough over the next few years.

"We're going to be in a deflationary period for two years and then in an inflationary period probably for the next five," Barr said.

"Companies are going to have to be very agile in terms of adjusting to those realities. There will be less leverage on capital and it will be harder to get capital."

Corn prices remain strong, Barr said. But, he added, "As to where it's going, it's about ethanol."

Soybean prices are in a transition, according to Barr.

"Recovery in South America is one of the big question marks," he said. "If we get a big rebound in Argentina and Brazil, we could see that market change a little bit.

"We are heavily reliant on China and their demand. The soybean market could change pretty dramatically after the first of the year when we get into the South American crop."

Livestock producers may be subject to even more uncertainty.

"You've got a meat and dairy industry now that can only grow if it can grow its export market," Barr said. "And as it grows in the export market it exposes itself to a whole other set of volatility we've never seen before.

"The hog side is where the challenge really is at this time. They've had two years of reduced equity. They're now exporting 20 percent of their production, just like the broiler side. But it doesn't have ability to turn production as quickly as the broiler guys do.

"The hog industry is going to have to take a hard look at its role if it's going to be an international player. This is the one where we're going to see the most restructuring in terms of how they deal with that industry."

Dairy, Barr said, "will have to decide do we want to be in the international market or not, and what level of production do you need if you're not going to be a player in the international side."

One area often overlooked by those analyzing agricultural outlook is currency inequity, according to Barr. But he believes it has become increasingly important.

"Take a look at commodities in other countries' currencies if you want to understand whether we're getting to a level in U.S. dollars which will be commensurate with historical levels," Barr said.

"If you look at wheat, from '06 to '09, if you look at it in euros wheat prices are only up 8 percent even though they're up 29 percent in U.S. dollars. So everybody's perception of price needs to be taken in the context of the global market because our currency has eroded so much over the last five to six years."

Despite the challenges, Barr is bullish on agriculture.

"Overall, when you look at ag, it's a pretty positive outlook," Barr said. "Yet we have a decline in net cash income. We averaged $80 billion a year over the past seven years versus $60 billion a year over previous 10 years or so. The balance sheet is strong for agriculture."