- If realized, 2012 will be another record setting year for all measures of farm income.
- “We have not seen as positive an outlook for 30 years.”
Some wood-knocking may be needed here, but a USDA Foreign Agricultural Service spokesman expects commodity prices to remain at historically high levels for the next decade.
Michael Dwyer, director of the FAS Global Policy Analysis Division, says “things never looked so good — if you have a crop to sell,” this year. “If realized, 2012 will be another record-setting year for all measures of farm income.”
And Dwyer, speaking at the recent inaugural Southwest Ag Issues Summit in Austin, Texas, said that trend likely will continue, unless some outside force — worsening recession or government trade policy errors, for instance — derail this train.
He said ag income has risen 40 percent in the last four years — during a time of “economic malaise. We’ve seen a time of great prosperity for American agriculture and not at the expense of the taxpayers. Farm programs have not been expensive. The point of a safety net is that in good times farmers don’t need payments.”
The numbers that project continued high farm prices for the next decade were compiled before the impact of the most recent drought was known. “Figures for 2012 likely will be higher,” he said. “Also, meat and poultry is trending up for the next 10 years.”
The trend is not just national, but global. “We see a booming demand for meat, especially in developing countries. Things look pretty good.”
Middle class growth
Expansion of the middle class, primarily in developing countries, is a catalyst for growth, he notes. “In the United States, Europe and Japan, when people get a raise they don’t spend it on food. That’s not so in China.” Increased income goes to improved diets.
Most of the new middle class will arise in the developing world, “with a significant number in China. The impact on food consumption will be huge; someone has to produce the food and it probably will not be China.”
India also will see a rise in the middle class, but food imports may not be as robust because of limited access to markets.
Increased meat consumption will be a key. In the last 10 years, meat consumption in the United States declined by 2 percent. In Sub-Saharan Africa, the trend is up 102 percent. It’s up more than 60 percent in China.
“The growth is in the developing world,” Dwyer said.
A continued decline in the value of the U.S. dollar also will spur exports and “exert further upward pressure on commodity prices.”
The biofuel industry is also growing. “Last year the United States was the world’s largest exporter of biofuels. Production continues to grow, boosting feedstock demand. If the economics of biofuels continue to improve, the industry will grow. We have strong domestic demand and booming ethanol exports.”
Rise of a cellulosic ethanol industry could be disruptive to the corn-based ethanol industry. “Currently, cost of production is a barrier (to cellulosic ethanol). A breakthrough could take a lot of corn out of the process. We don’t see that happening.”
Dwyer said trade will increase and trade liberalization will continue. Free trade agreements (FTAs) will be critical as the Doha round of trade negotiations continues to sputter.
The playing field remains tilted against the United States but without FTAs the field would be tilted even more. The cost of inaction with the Columbia free trade agreement cost America dearly. “Canada got in first, and it will take years to regain markets.”
Again, the developing world will be the driving force in trade. Consumer-oriented goods will be important for trade — anything one can buy in a grocery store. Those items, Dwyer said, will account for about 40 percent of ag trade goods. Bulk items — soybeans, grains, cattle, cotton, etc. — will account for another 40 percent.
He projects exports to top $168 billion by 2021, up $31 billion over the next decade.
Biotechnology, he said, will be a means of increasing production and efficiency. “Biotech is not a problem; it’s part of the solution. Producers want it to get yields up.”
At least 10 percent of the world’s crop acreage is now planted in biotech crops and that percentage is rising.
“Acceptance, however, is not universal. Europe, for example, has been slow to accept biotech. Developing worlds will be faster in disseminating biotechnology.”
Dwyer said planted acreage will increase, but not in the United States. Yield increases in recent years have come from improved technology and better production practices, except for oilseeds, mostly soybeans. Significant acreage increases in Brazilian soybeans has pushed oilseed acres higher.
South America, and particularly Brazil, will lead planted acreage increases. “Africa has a lot of uncultivated land,” Dwyer said, “but infrastructure (problems) will be a limiting factor.”
But wood still needs knocked. Dwyer says FAS makes “analysis by assumptions,” and those assumptions are based on best available information. Things can go awry. “There are things that can cause projections to unwind.”
Policy errors, for instance, can stymie trade and damage trust. “Export bans increase the price volatility,” he said, “and create distrust in the markets.”
High production costs also produce uncertainty and those costs are also likely to remain elevated. “Rising input costs will pressure margins. Commercial agriculture is an energy- and input-intensive industry and, as input costs increase, cost of producing food also increases. Critics don’t understand the economics of food production.”
He said the price of crude oil “clearly correlates with the cost of commodity and food production.
“So, what could go wrong? Prolonged economic stagnation, a new recession, crisis in Europe, a hard landing in China all pose a risk.”
He said a slowdown of the middle class growth rate is another concern as is the possibility of increasing value of the U.S. dollar. “Beware high input costs and short term exogenous (outside) shocks.
“But the bottom line question remains: ‘Is this another golden era for agriculture?’ That depends. But we have not seen as positive an outlook for 30 years.”