Newswise — Despite continued high energy prices, the Food and Agricultural Policy Research Institute expects world economic growth to remain strong in the coming decade, at around 3 percent per annum, boosting consumption of vegetable oil, dairy products, and meat in many parts of the world. The projection is part of FAPRI's 2006 agricultural outlook presented to Congress today (March 2). The outlook runs from crop years 2005/06 to 2015/16. According to FAPRI, solid commodity prices and a persistently weak U.S. dollar in industrialized trading countries keep U.S. exports strong for the next 10 years.
The agricultural outlook is a set of 10-year projections for U.S. and international commodity markets prepared each year for policymakers and agricultural planners. FAPRI is an economic research group with centers at Iowa State University, Ames, and the University of Missouri-Columbia. The projections incorporate recent macroeconomic forecasts and currently adopted agricultural policies.
FAPRI also reports that new policy developments and rising interest in renewable fuels due to high fossil energy costs are expected to boost ethanol and biodiesel markets in the United States, European Union and Asia. Industry thus expands its use of oilseeds, grains, and sugarcane, and prices are sustained. Ethanol trade is projected to double in the next decade, increasing from 0.65 to 1.20 billion gallons. The world ethanol price increases by 1.8 percent, reaching $1.32 per gallon in 2015.
Other highlights from FAPRI's 2006 agricultural outlook:
Sanitary and phytosanitary issues continue to affect production, consumption, and trade of meat products in the short run. The loss of major meat export destinations after a U.S. case of bovine spongiform encephalopathy (BSE) was confirmed in 2004 sent beef exports down by 82 percent and dropped the U.S. share of total meat trade by 7 percentage points.
Recent developments in meat trade include opening of the Canadian border; new BSE cases in Canada and Japan; an ineligible veal shipment from the U.S. to Japan, which again disrupted the Japanese market for U.S. beef; cases of foot-and-mouth disease in South America; and the threat of worldwide spread of avian flu. A science-based approach to most disease outbreaks has so far prevented these adverse events from becoming major market shocks. With continuing strong growth in pork and poultry exports, coupled with the reopening of the Japanese beef market, the United States is expected to regain 4 percentage points in its share of meat trade by 2010.
World pork production benefits from trade shocks from BSE in beef and from avian flu in the broiler industry. World pork production reaches 113.1 million metric tons, and trade reaches 4.9 million metric tons by 2015/16. The European Union loses market share, while all other major competing exporters, including Canada, the United States, and Brazil, gain market share. In the dairy sector, growth in the use of milk powder in Asia allows the U.S. to expand its net exports by 88 percent.
Grain prices remain high, given strong import demand on world markets. Wheat prices remain above $150 per metric ton. World rice reaches $334 per metric ton in 2015. Corn, sorghum, and barley prices steadily increase, from the $90-$94 range to the $117-$134 range per metric ton. The United States and Argentina are among the countries benefiting from strong world market conditions and increases in grain use. The U.S. corn market share increases from 62 to 72 percent over the projection period.
FAPRI continues to foresee greater concentration in soybean production. Argentina, Brazil and the United States increase their combined production share from 82 percent to 84 percent of world production. World soybean production reaches 277 million metric tons by 2015/16, a 24 percent increase from 2005/06. Brazil overtakes the United States as the largest soybean producer and exporter in the world, holding a 34 percent share of world production and a 51 percent share of world trade by the end of the period. The U.S. share of production and trade drops to 30 and 27 percent, respectively. China, the world's largest importer of soybeans, expands its imports from 41 to 52 percent of total world imports by 2015/16.
The depreciation of the U.S. dollar against currencies in industrialized countries begins to taper toward the end of the period. Australia, Canada and the European Union recover from weather-related stresses and become strong competitors in crop markets. Further, the United States loses competitiveness relative to Latin American countries as the U.S. dollar appreciates against most Latin American currencies in nominal terms. The effects are especially acute in meat markets, since the Latin America region has benefited from the BSE crisis in North America.
The multi-year FAPRI projections provide a starting point for evaluating and comparing scenarios involving macroeconomic, policy, weather and technology variables in world agricultural trade. More information is available at the Iowa State University (http://www.fapri.iastate.edu) and University of Missouri (http://www.fapri.missouri.edu) FAPRI Web sites.
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