Both the booms and busts of the agricultural industry are related to exports, said Michael Boehlje, a distinguished professor in the Department of Agricultural Economics at Purdue University.

“The booms have been created by export growth, and the busts created by profound declines in exports,” he explained during the Taming Agricultural Risks meeting hosted by the Federal Reserve Bank of Chicago.

“You got to watch exports because they account for about 25 percent of U.S. agricultural income and exports are twice as important to agriculture as the entire U.S. economy,” the Purdue professor said.

Boehlje stressed that he is bullish about the long-term future for agriculture. However, he is concerned about bumps in the road.

At various meetings, I have heard many speakers discuss the need for continued increases in food production due to the rapid growth of the world population, which is predicted to reach 9 billion people by 2050.

Boehlje said demand for food is not driven by population.

“It’s income growth that counts and that has to occur in the right parts of the world,” he said. “Income growth is the primary driver for demand for food.”

To meet some of these demands, more land has been converted to farmland in several countries, Boehlje said.

“For the last eight years, 147 million additional acres have been put under the plow. That acreage has come from South America, the former Soviet Union, East Asia and North America,” he reported. “In the U.S., the land has come from CRP and pastureland that was converted to cropland.”

And once this land is put into production, it remains in production because agriculture is a high, fixed-cost industry.

“You do not shut down the plant even when prices go below the total cost of production,” Boehlje said. “You only shut it down when it will no longer cover variable costs.”

Boehlje, who owns a farm in Iowa, said his variable costs are around $3.20 per bushel of corn.

“We’ve got to get sub $3 corn before that land will come out of production,” he said. “That’s the problem in agriculture — the peaks are five to eight years and the troughs are 10 to 15 years and we are moving into the trough cycle.”

For 2014-2015, the Purdue professor said, farm income may fall by 25 percent.

“I’m not concerned about debt-to-asset ratios. I’m worried about repayment capacity,” he said. “Farm profits fluctuate around zero. That’s the definition of a commodity business. There’s no pure profit in a commodity business in the long run.”

The lower grain prices are the better it is for livestock producers. However, the professor said, he is concerned about the growth demand longer term.

“The core base of demand for U.S. animal proteins is in the U.S.,” he said. “We’ve had a 10 percent decline in animal protein consumption, and it’s not clear how quickly that will recover.”

Boehlje is not expecting a collapse in ethanol in terms of using corn. However, there won’t be expansion of ethanol plants.

“The two core components of demand for corn — exports and ethanol — we think won’t grow, but not collapse either,” he said. “That’s why we think we’ll have a soft landing.”

I hope he is correct. I can’t imagine anyone in the agricultural industry who wants to relive that painful period of the 1980s.