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Continued prosperity for U.S. agriculture

Continued prosperity for U.S. agriculture
• Net farm income has gone from about $55 billion in 2000 to what is predicted to be $100 billion this year, and most of this growth is due to high prices. • Cash receipts for cattle and crops have shown an upward trend for the last four years, and that was due primarily to increased global demand, mostly from China and Southeast Asia.

Several factors will impact the future of U.S. agriculture in the next decade, but most current indicators point towards continued prosperity, says Daniel Whitley of the USDA Foreign Agricultural Service.

“We all have to agree, no matter which metric we choose to examine it, there is very good prosperity being enjoyed today in American agriculture,” said Whitley at this year’s Southern Peanut Growers Conference held in Panama City, Fla.

“Net farm income has gone from about $55 billion in 2000 to what we’re predicting to be $100 billion this year, and most of this growth is due to high prices.”

If you look at the 10-year average, we’re currently running about $20 billion above the 10-year average, he adds.

“Again, a lot of this is due to commodity prices. This is a judgment made about the profitability of ranchers and farmers — it has nothing to do with processors. That certainly is a record, but we fully expect that to continue into the future.”

Cash receipts for cattle and crops have shown an upward trend for the last four years, and that was due primarily to increased global demand, mostly from China and Southeast Asia, says Whitley.

The profitability and the profits being generated in agriculture show up in the primary asset of farmland, he says.

“USDA is predicting this year that the value of the farm sector in the United States is going to equal $2 trillion. Obviously, that is a record, and it’s largely due to the value of farmland increasing.

“But farmers also are great bookkeepers and have been paying down their debt. They also have more ownership in their machinery and in their operations,” says Whitley.

All of this is good, but the story gets even better, he says.

“The best news is that all this prosperity is not coming at the expense of the American taxpayer. This year, USDA expects farm payments to be zero for price-related payments. There will be payments made for conservation, direct payments and others, but right now, we predict there will be no payments related to prices. That makes for good news in Washington, D.C., and it makes for good news for rural Americans.”

Looking at projected baseline prices over the next decade, Whitley says USDA has predicted that soybean prices will remain high. They probably won’t be at the record levels of 2007 and 2008, but certainly higher than historical trends, he says.

“I would expect that when the next baseline is released, those prices will be even higher than we’re projecting for this year.”

Long-term projections

As for the projection for net farm income out to 2020, Whitley says he doesn’t expect the supply response to be able to keep pace with the increased demand for U.S. agricultural products and for agricultural products around the world.

Of the many factors affecting U.S. agriculture, the most important is global demand and the growth of the middle class around the world, he says.

“There are many who argue that we should talk about how the dollar impacts agricultural exports. If anyone tells you the value of the dollar doesn’t play a role in how U.S. ag exports perform, they’re smoking something strange. There’s a very strong correlation between the two,” he says.

There will be a “seismic shift,” says Whitley, in where middle-class consumers around the world will be located.

“If you go back to 1990, more than half of middle-class consumers resided in these developed countries. What we’re predicting going out to 2020 is that nearly all the growth in middle-class consumers will occur in developing countries.

“There’s a new acronym now they’re using for Mexico, Indonesia, South Korea and Turkey — MIST. These countries are growing at a rapid pace. Over the next decade, we’re estimating economic growth in developing countries will average 6.6 percent annually. Developed countries will average 2.2 percent.”

As consumers move from low-income to middle-class status, one of the first things they do is go out and buy a car, which requires gasoline for fuel, and they improve their diets, moving to higher quality proteins, says Whitley.

“That puts upward pressure on demand for the livestock sector and all the materials that feed the livestock sector. That’s why the middle class is so important. We have the middle class increasing by 104 percent by 2020, and only 9 percent of that is in developed countries.”

It’s important to remember, he says, that not all developing countries are created equal. “There’s China, then India, then everyone else.

The middle class in China is expected to grow by 226 billion households by 2020. China has been the fastest growing cotton and soybean market over the past few years. If you took China out of the equation, there would be virtually no growth in cotton and soybeans.

“China is the 800-pound gorilla in the room and is certainly attracting the attention of those in the international agricultural trade community, not only in cotton and soybeans, but we’re also seeing movement in corn.

“Much of this can push food prices higher to unsustainable levels, making it more difficult for hungry people around the world to be able to afford food.”

Value of dollar

Turning to the value of the dollar, Whitley says the USDA is projecting that throughout the remainder of the decade, the dollar will fall by 14 percent, with most of the decline coming against currency in developing countries.

“When the dollar falls against the currency in those countries, it makes them able to afford more products from the United States. In just the last year, the dollar has fallen by 14 percent.”

Biofuels is one those factors that some people love and some hate, says Whitley. The industry is very close to achieving its mandate of 15 billion gallons for corn ethanol by the year 2015.

“We’re at about 13 billion gallons now, and we have the capacity to be at about 14.5 billion gallons. Once we reach the mandate, the increased demand for corn, feedstock and ethanol will probably plateau and remain level unless oil prices shoot through the roof and ethanol becomes profitable on its own.

“If tax credits expire at the end of the year, then attaining profitability in the industry will become much tougher.”

Commodity prices are undeniably highly related to energy prices, says Whitley. A study out of Purdue University showed that corn price increases in 2007 and 2008 were 80-percent related to the rise in crude oil prices.

The agricultural industry, he says, has done a great job of accepting the advancements of innovation and technology and to answer the call to help feed hungry people all over the world. But how the rest of the world responds will determine largely how we’ll meet the future demand for food.

“We’re projecting that U.S. ag exports will reach almost $140 billion, so we’ve basically doubled our exports over the past five years. But it’s not just the United States. All of the major agricultural producing countries around the world have increased their exports in the last five years.

“Even the Chinese have become a major exporter as well as importer. Over the long-term, Brazil is probably the country to keep an eye on, not only because of their advancements in technology, but also because of the additional land they have at their disposal for increasing production.”

By the year 2020, says Whitley, global trade will reach $1 trillion.

“One of the challenges the world will have to meet over the next 30 to 40 years will be how to feed what economists project will be 9.5 billion people on earth by the year 2050. One of the ways to do that is to increase yields. We have adopted the technology to improve our yields.

“Over the last 15 years, our trend upwards certainly is more than many of the world’s corn producers. The yields in the United States are five times the yields for the same crops in Central America.

“South America has started to adopt some of the biotechnology, and we expect some of their trend yields to move upward. But the Europeans and East Asians are still resistant to new technology.”

There are basically three large areas of land around the world that could be brought into agricultural production, he says: South America, which is mainly Brazil; Eastern Europe; and Africa.

“But one of the things we’ve seen since 1990 is that most of the gains have been in yields and not in increased areas of planting. Eventually, there’s a finite amount of land you can bring into production. Eventually, you have to increase yields. We do have land at our disposal in the world, but not in the United States.”

The increase in the purchasing power of the middle class is going to outpace the purchasing power of developing countries in the next decade, and the prosperity of U.S. agriculture should continue, says Whitley.

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