USDA chief economist remains optimistic about American ag in upcoming yearWritten by Natasha Wheeler
Arlington, Va. – Chief Economist Robert Johansson provided his insight about the U.S. economy on Feb. 25 at the USDA 92nd annual Agriculture Outlook Forum in Arlington, Va.
“Last year, the outlook was driven more by microeconomic factors like transportation issues and the energy price declines we saw throughout the West. While those things are still important, this year the focus will be on three main themes related to the macro economy,” he stated.
A slowing global economy, dropping commodity prices following a record harvest and farm incomes are issues expected to affect the U.S. economy in the upcoming year.
“2015 marked a significant change in the growing business cycle,” Johansson noted.
The European Union and Japan both experienced particularly weak growth, the Canadian economy grew sluggish, and China’s gross domestic product (GDP) is expected to slow by five percent by mid-2020.
“By 2020, China’s GDP is projected to be lowered by $1trillion,” Johansson predicted, adding that countries who compete for exports into that country will be impacted heavily by falling commodity prices.
“By comparison, the U.S. economy is more diverse and expected to be a growth leader amongst developed countries over the next decade,” he continued.
In 2016-17, U.S. economic growth is expected to increase three percent, boosted by low energy prices, low interest rates and increases in investment and consumer spending.
Economic growth will be accompanied by a stronger dollar, as well, which means that it will be more difficult for the United States to sell agricultural products to countries with weaker currencies.
However, Johansson remarked, “The U.S. economy does help ag producers in several ways. First, it is easier for buyers to import goods such as fertilizers from abroad. Second, 2016 median farm incomes are forecasted to be over 50 percent – more than median U.S. household incomes, and third, a stronger domestic economy means it is likely there will be more opportunities to sell U.S. products at home and provide added value here.”
Nearly 80 percent of U.S. agriculture products are sold domestically, although international trade will continue to be an important part of the economy in the U.S.
“There are many places for optimism regarding the prospects of growing international markets for U.S. ag products,” he said.
Johansson predicted that Canada will be our primary customer in fiscal year 2016 and trade with China will remain strong, adding that in that past 10 years, agriculture exports into China have increased by over 125 percent.
“A boost to the projected outlook for U.S. trade is anticipated with reductions of trade barriers through free trade agreements,” he commented.
The Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnerships (T-TIP) have the potential to positively impact American trade, providing increased access to foreign markets.
“One important market is Cuba. Cuba’s geographic proximity and demand for U.S. products make it a natural market for U.S. producers,” Johansson noted.
Globally, strong sales over the last decade have boosted trade volume and encouraged countries to increase production for the global market. Record production levels have been seen over the last three years, although Johansson predicted production will soften over 2016.
“Policy changes around the world are impacting the holding and releasing of stocks into the global market,” he added.
U.S. planted acres for major crops are expected to decline in the upcoming year, but total meat and poultry production is forecast to reach a record high in 2016.
Beef production is expected to increase as supplies of cattle continue to grow, and overall, the estimated cattle inventory is just under 92 million head, three percent higher than last year.
Turning to the financial health of the U.S. agriculture, Johansson remarked, “Overall, the balance sheet seems strong.”
To mention food prices briefly, he also stated that food inflation was at 1.9 percent in 2015 and that with continued low commodity prices and falling energy prices, inflation is expected to remain low.
Wrapping up, Johansson remarked, “U.S. producers have adjusted income use and technologies as the world around them has changed, during periods of high and low farm incomes. Farmers continue to become more efficient and we see no reason to expect that to change.”