Glauber sees positive outlook for U.S., global agriculture moving into the future
Washington, D.C. – During the 90th Agriculture Outlook Forum, hosted by USDA, Chief Economist Joe Glauber noted that good news can be seen for agriculture in a variety of places.
“Frankly, we see some similarities from last year,” Glauber said. “Some of the transitions we have seen in the last several years are still in place today.”
USDA’s Agriculture Outlook Forum was held Feb. 20-21 in Washington, D.C. It was also broadcast live over the internet.
Glauber noted that agriculture has seen a long-term downward trend in terms of cost prices, after removing inflation.
“With the effects of inflation taken out, we can see a long downward trend from World War II down to 2000 or so, with the exception of the spike in prices we saw in the 70s. We have seen a march of productivity in growth that causes prices to fall,” Glauber said.
He further added that this trend marks the success story that agriculture has seen over the last 50 years.
“In the last 10 years, we have seen prices for most major field crops double,” he continued. “Agriculture trade has doubled since then, and we have seen that farm income has doubled.”
Additionally, since 2006, the U.S. has added $1 trillion to farm equity, and in 2012, global record crop yields were seen for grains, which resulted in a decrease in prices.
“We know one thing – one way or another, the next 10 years will look more variable than they do in our projections,” Glauber said. “There is a lot of strength amid the variables in our underlying economy, despite the drop in prices.”
Coming out of 2013, Glauber said record global production was seen in corn, wheat, rice, other grains, soybeans and sunflowers.
“High prices will bring in more production,” he commented of the global market.
At the same time, grain production has grown at two percent per year, some of which can be attributed to increased demand for livestock feeding.
Glauber said, “As we move forward, demand will continue to grow.”
“Projections for global trade are expected to increase again, reflecting the strong growth we anticipated in these markets,” he added.
For 2014, Glauber noted that USDA’s projection team estimates exports at $142.6 billion – another record.
“There are increased volumes across the board,” he said, adding, “Imports are up, as well, to $110 billion.”
Regardless of increasing import levels, Glauber explained that a healthy trade balance of almost $3 billion is maintained.”
“I have made this point several times in the past few years, and the fact remains – China remains our number one market,” Glauber said. “Most of the $25 billion that goes to China is soybeans and cotton, but there’s a whole host of other products – like sour gum and lifestyle products, which we also export.”
China, he predicted, will remain an important market.
Glauber also addressed drought conditions that linger across the country.
“We know what impact drought has had on crops over the last few years,” he said. “Livestock has also seen some big losses.”
More recently, Glauber remarked, California’s extreme water shortages concern the U.S. because the state is the number one agricultural state in the nation.
“There is a lot of concern and focus on what availability of products will look like,” he said.
Drought in California influences the likelihood of high prices for fruit and nuts.
“One-third of the vegetables grown in the country are produced in California, and two-third of fruits and nuts – almost 80 percent – are found there,” he continued. “Producers there are going to have to make tough decisions in terms of how to allocate water in California.”
“The fact we entered this year after global record production, and we still have a tight stock situation has been an interesting story,” Glauber commented. “Despite relative production and high prices, global stocks have not been increasing all that much.”
This year, he says price spikes similar to those seen in 2010 and 2011 are expected, and he predicts larger production and continued rebuilding of stocks around the world.
“I know a lot of people are interested in the numbers,” Glauber continued. “We are expecting the total area planted to be down marginally for the major crops, but it will remain fairly close to last year’s levels.”
“With strong planting and a return to normal weather, we should see close to record crops,” Glauber summarized. “We anticipate, with better production, that prices will come down, and we will see lower prices in 2014-15.”
High wheat and soybean prices are forecasted for the coming year, and rice prices remain strong.
With price incentives, Glauber said that producers will be faced with many choices.
“I think the more interesting decisions we will see are in the Midwest, with producers making the choice between corn and soybeans,” Glauber said, mentioning that data favors soybean production. “We will see some increase in production for rice because we have very strong prices, and rice looks very attractive relative to other alternatives.”
He further noted that producers will be faced with decisions of whether or not to sell water rights, particularly in California.
“However long-term these challenges are, we have very positive aspects of what is going on in the agricultural sector, and I think we should expect some positive times as we move forward and look out at U.S. agriculture,” Glauber finished.
In the livestock sector, USDA’s Chief Economist Joe Glauber commented that animal agriculture is in better shape than it has been over the past several years.
“Profitability, as measured by crude ratios, is significantly improved this year,” he mentioned. “We are seeing higher prices for poultry and pork being driven by the strength we have seen in export markets.”
While assumptions of expansion in the livestock market have been hampered by drought, Glauber said producers are reluctant to expand until they are assured that conditions are sufficient to handle increased livestock numbers.
“There has been a reduction in inventory since 2011 and significant reduction in the Southern Plains,” he continued. “We will start to see expansion, but this will take a little longer.”
USDA’s Chief Economist Joe Glauber looked at proposed regulations from the Environmental Protection Agency and their impact on the future of ethanol production.
“I think we will see growth in dried grain and ethanol use, though it has been fairly flat over the last few years,” he commented. “A lot of the growth will depend on penetration of higher blends for ethanol.”
As the Renewable Fuel Standard requirements moving forward continue to be uncertain, productions levels also remain unknown.
“The other important thing in the world of ethanol is that in 2011, we exported 1 billion gallons of ethanol, and this will increase in the long-run,” he said.