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Serving: United States

Good Years Ahead for U.S. Agriculture

Consumers need to brace for food price inflation.

The outlook for U.S. agriculture has rarely, if ever, been more favorable. That's how USDA's new chief economist, Joe Glauber, opened Thursday's Agricultural Outlook Forum in Washington, D.C.

"World economic growth should average 3.5% per year over the next decade, up from 2.9% annual growth since the turn of the century," he explains. "Growth in developing countries, projected to average 5.8% over the next 10 years, will boost food demand."

Second, our weakening dollar boosts exports to partially offset strong commodity prices. Sustained exports will contribute to higher ag commodity prices and boost cash receipts.

Third, world oil demand is rising due to strong global economic growth in highly energy dependent economies in Asia. Ethanol returns should stay high, attracting more expansion in ethanol production.

Net farm income to rise

Glauber forecasts 2008 net farm income at $92.3 billion, up 4.1% from 2007's $88.7 billion and 51% higher than the 10-year average.

Favorable returns to the farm sector translate into another year of rising asset values, particularly land," he says. "Declining ratios of debts to assets and equity point to a financially strong farm economy."

USDA projects value of 2008 crop production will rise $30.6 billion or 21% above 2007 to $174.6 billion. But livestock cash receipts will sag about 2% to $138.7 billion. Small declines in value across cattle, hogs, poultry and dairy will contribute to that decline.

Production costs are projected to rise to almost $280 billion, up 9% from 2007, following an 11% hike last year. Feed costs forecast at $45 billion, are up 18%, after rising 25% last year.

Sharply higher feed costs in the face of lower livestock sales income will put the financial squeeze on livestock producers.

Manufactured inputs (fertilizer, fuels, electricity and pesticides) are forecast to total $47 billion, up 14% on top of a 12% hike last year. Some inputs will rise even faster. January's index of prices paid for fertilizer is up 32% on the year. "Higher fertilizer prices largely reflect crop area expansion here and abroad, a growing dependence on imports and the weak dollar," notes Glauber.

Food price inflation to accelerate

Glauber's calculations suggest consumer food prices will rise 3% to 4% in 2008 compared to the 4% hike in 2007.

Larry Pope, president and CEO of Smithfood Foods, expects food inflation to run 10%, 12% or even 15%. "It's going to happen," he says. "Costs are simply rising too fast. We are facing the reality of $5 corn, when we thought $4 corn would never be a reality for an extended time. High feed costs are worldwide. Our hog production operations in Easter Europe face $9 corn.

"Producing 20 million hogs a year, we have more reason than anyone to be concerned about feed costs," he adds. "We're reducing our swine breeding herd.

"U.S. food costs will rise," says Pope. "Maybe that is simply a cost to reduce our dependence on foreign oil. We better start telling U.S. consumers that food prices will rise because it will happen."

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