Economic Drivers Will Influence Long-Term Changes in Ag

A Farm Equipment Special Report: What Will Agriculture Look Like in 2021?

Goodbye direct payments. Considering current budgetary issues, Gary Schnitkey, Univ. of Illinois professor of agricultural economics, says to expect some changes in programs farmers have grown accustom to.

"Direct payments are high on the hit list for budget cuts," he says. "They're hard to justify and they were supposed to be phased out over time, but weren't."

Not to worry. With 7 billion hungry mouths to feed and a staggering estimate of 9 billion people on the planet by 2050, demand for food is likely to stay strong. Income increases in low and middle-income countries also are leading to increased demand for higher quality food, including meat and dairy.

A recent USDA Economic Research Service report said when income increases by 10% in Tanzania, for example, spending on food increases by 8%. An income increase of that level in the U.S. would result in just a 1% hike in food spending.

"We're going to see stable demand for corn," Schnitkey says. "As long as China and India continue to grow their income, they will demand more meat — which will mean more corn exported to those countries to feed livestock."

USDA Agricultural Projections to 2020 project continued strong agricultural demand and high U.S. farm income for at least the next 10 years.

"Crop insurance will be different 10 years from now," Schnitkey says. "It has been a growing program for the last 10 years and my guess is that it's approaching a plateau in its growth. In the future, producers will need to look at other means to supplement the protection they get from the federal crop insurance program."

Dwindling insurance value and the loss of direct payments could result in a holdup of technological advancements if markets should fall.

"Somewhere in the next 10 years we're going to have low prices. Ag is just that way, it's cyclical," Schnitkey says. "But without the countercyclical measures of direct payments and crop insurance to soften low revenues, equipment dealers could expect the demand for equipment to decline, too."

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