What is in this article?:
- Commodity prices expected to remain high for decade
- Middle class growth
- Trade increasing
- Commodity prices should remain at historically high levels for the next decade.
- 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.”
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.”