Summary of Projections
Macroeconomic Assumptions
U.S. Crops
U.S. Livestock
U.S. Agricultural Sector Measures
Global Agricultural Trade
Summary of Projections: February 2006 Baseline
The baseline provides longrun projections for the agricultural
sector through 2015. Projections cover agricultural commodities,
agricultural trade, and aggregate indicators of the sector, such
as farm income and food prices. The baseline identifies major forces
and uncertainties affecting future agricultural markets; prospects
for global long-term economic growth, consumption, and trade; and
future price trends, trade flows, and U.S. exports of major farm
commodities.
The projections are a conditional scenario with no shocks
and are based on specific assumptions regarding the macroeconomy,
agricultural policy, the weather, and international developments.
The baseline assumes that the Farm
Security and Rural Investment Act of 2002 (the 2002
Farm Act) and the Energy Policy Act of 2005 remain in
effect through the projection period. Additionally, the
Agricultural Reconciliation Act of 2005 is assumed to
be in force. The projections are not intended to be a
Departmental forecast of what the future will be, but
instead a description of what would be expected to happen
under a continuation of current farm legislation, with
very specific external circumstances. Thus, the baseline
is a neutral backdrop, reference scenario that provides
a point of departure for discussion of alternative farm
sector outcomes that could result under different domestic
or international assumptions.
The baseline projections were prepared in October through December
2005 in support of the fiscal year 2007 President's Budget. Projections
reflect a composite of model results and judgment-based analysis.
Normal weather is assumed. Also, the baseline assumes no further
outbreaks of plant or animal diseases. Short-term projections used
as a starting point in the baseline are from the November 2005 World
Agricultural Supply and Demand Estimates report.
Key Assumptions Underlying the Baseline Projections Include:
Economic Growth
- World economic growth is projected to increase at a 3.2-percent
average annual rate between 2006 and 2015, after averaging 3 percent
annually between 2001 and 2005. U.S. gross domestic product (GDP)
slows from the high rates in 2004 and 2005 toward a sustainable
longrun rate near 3 percent. Strong economic growth in developing
countries of about 5 percent annually is projected for 2006-15.
Population
- Growth in global population is assumed to continue to slow in
the baseline, to an average of about 1.1 percent per year over
the projection period compared with an annual rate of 1.7 percent
in the 1980s. Although slowing, population growth rates in developing
countries remain above those in the rest of the world. As a consequence,
the share of world population accounted for by developing countries
increases to over 81 percent by 2015, up from about 80 percent
in 2005.
The Value of the U.S. Dollar
- The U.S. dollar is assumed to appreciate slowly in real terms,
remaining relatively high by historical standards. A strengthening
U.S. dollar in the baseline assumes that capital moves into the
United States to take advantage of well functioning financial
markets and high expected long-term productivity growth.
Oil Prices
- Large increases in oil prices from late 2002 through 2005 resulted
from strong crude oil demand, largely reflecting world economic
recovery and rapid manufacturing growth in China and India. From
2007 to 2010, real oil prices are projected to fall as new crude
supplies help offset the rise in demand from Asia. In subsequent
years, crude oil prices are projected to rise, but only slightly
faster than the general inflation rate. Factors expected to constrain
longrun oil price increases include new oil discoveries; new technologies
for finding, extracting, and refining oil; the ability to switch
to nonpetroleum fuels; and the ability to increase energy efficiency
by substituting nonenergy inputs for energy.
U.S. Agricultural Policy
- The 2002 Farm Act, as amended, is assumed to continue through
the projection period.
- Area enrolled in the Conservation Reserve Program (CRP) is assumed
to rise to 39.2 million acres from about 35 million acres currently
enrolled.
- The Agricultural Reconciliation Act of 2005 is assumed to be
in force for the baseline projections. As part of this legislation,
authority to issue cotton user marketing certificates is repealed
following the 2005/06 cotton marketing year, thereby ending the
Step 2 cotton program. Also, national dairy market loss payments,
administered under the Milk Income Loss Contract Program, are
extended, with a reduced payment factor of 34 percent of the difference
between $16.94 per hundredweight and the Boston Class I price
through August 2007.
Ethanol
- The Renewable Fuel Program of the Energy Policy Act of 2005
mandates renewable fuel use in gasoline (with credits for biodiesel)
to reach 7.5 billion gallons by calendar year 2012, nearly double
2005's level. This program largely affects production of ethanol,
which is primarily produced from corn. Additionally, relatively
high prices for oil contribute to favorable comparative returns
for ethanol production, providing further economic incentives
for expansion in the production capacity of that industry over
the next several years. To reflect this ongoing expansion, the
baseline assumes that the legislation's renewable fuel standard
is significantly exceeded through 2010. In subsequent years, ethanol
production is assumed to be closer to the levels in, or levels
based on, the legislation.
Cattle and Beef Trade
- The baseline assumes a gradual rebuilding of U.S. beef exports
to Japan and South Korea. Canada's exports of live cattle to the
United States are assumed to remain limited to steers and heifers
under 30 months old for immediate slaughter and Canadian feeder
cattle that enter U.S. feedlots and are slaughtered before reaching
30 months of age.
International Policy
- Baseline trade projections assume that countries comply with
existing bilateral and multilateral agreements affecting agriculture
and agricultural trade. The baseline incorporates effects of trade
agreements and domestic policy reforms in place in November 2005.
The Central American and Dominican Republic Free Trade Agreement
is assumed for the sugar baseline projections starting in calendar
year 2006.
- Domestic agricultural and trade policies in individual foreign
countries are assumed to continue to evolve along their current
path, based on the consensus judgment of USDA's regional and commodity
analysts. In particular, economic and trade reforms underway in
many developing countries are assumed to continue.
Key Results in the Baseline Projections Include:
U.S. Aggregate Indicators
- Net farm income is projected to be relatively stable from 2006
to 2015, after declining from the historically high levels of
2004 and 2005. Overall farm cash receipts increase through the
projections due to growing domestic use and export demand as well
as increases in agricultural commodity prices. Rising production
expenses and lower government payments, however, offset gains
in cash receipts and other sources of farm income. With government
payments declining, the agriculture sector relies increasingly
on the market for more of its income. Cash receipts represent
more than 89 percent of gross cash income at the end of the projections,
up from about 85 percent in 2005. Net farm income projections
average about $54 billion annually for the next decade, compared
with $48 billion in the 1990s. Stable net farm income assists
in asset accumulation and debt management. The debt-to-asset ratio
falls moderately in the projections, continuing a generally declining
trend since the mid-1980s.
- The value of U.S. agricultural exports rises in the baseline
as steady global economic growth and stronger world trade lead
to gains for U.S. agricultural export volumes and higher commodity
prices. High-value product exports continue to grow in importance.
Increases in U.S. consumer income and demand for a large variety
of foods underlie growth in U.S. agricultural imports. Imports
of processed foods are expected to continue growing in importance.
Overall, the U.S. agricultural trade balance is projected to show
a small surplus through most of the baseline, although it will
remain lower than in the past two decades.
- Consumer food prices are projected to rise less than the general
inflation rate.
U.S. Agricultural Commodities
- Corn used to produce ethanol in the United States more than
doubles the 2004/05 level by 2015/16. This increase reflects the
Renewable Fuel Program of the Energy Policy Act of 2005, large
ongoing ethanol plant construction, and economic incentives provided
by continued high oil prices. Increased feeding of distillers
dried grains, a coproduct of dry mill ethanol production, helps
meet growing livestock feed demand. Thus, feed use of corn rises
only slowly in the projections.
- Growth in the food use of wheat is projected to be somewhat
slower than the rate of population increases, reflecting dietary
adjustments by some consumers to smaller overall portions, including
lower carbohydrates.
- Growth in domestic soybean crush is largely driven by increasing
demand for domestic soybean meal, mostly because of rising feed
demand for expanding meat production. Domestic demand for soybean
meal is tempered somewhat by a rising volume of coproducts from
ethanol production.
- Mill use of upland cotton in the United States falls through
the projection period as apparel imports by the United States
continue to increase, reducing domestic apparel production and
lowering the apparel industry's demand for fabric and yarn produced
in the United States.
- Steady expansion of domestic food use of rice is projected over
the baseline, largely due to an increasing share of the U.S. population
of Asian and Latin American descent. Use of rice in processed
foods and pet foods also increases.
- Consumption of horticultural products continues to rise in the
baseline. Imports play an important role in domestic supply during
the winter and, increasingly, during other times of the year,
providing U.S. consumers with increased variety of horticultural
products.
- With the end of the U.S. tobacco marketing quota and price support
program, tobacco leaf production initially declines as some farmers
exit the industry. Production then rises through the rest of the
projections, primarily reflecting increases by the remaining growers.
Declining cigarette consumption in the United States is an important
factor underlying projected decreases in domestic use of tobacco
leaf. Exports of tobacco leaf are projected to increase, however,
reversing the generally downward trend of recent years, as lower
tobacco leaf prices than during the last several years under the
tobacco program make U.S. leaf more competitive in global trade.
- Higher grain prices reduce returns to U.S. meat producers and
slow production gains. Higher levels of per capita meat consumption
are projected, with poultry accounting for a larger share of the
total. While consumer expenditures on meat increase, they represent
a declining share of disposable income.
- Productivity gains are expected to boost milk output per cow
and total milk production throughout the projections. Milk cow
numbers are expected to decline after 2006 at a relatively slow
pace as increasing specialization of dairy farms over time makes
exit rates lower than in past decades.
Agricultural Trade
- Population and income are two important factors underlying global
demand for food and agricultural products, world trade, and U.S
exports. With population growth in the world continuing to slow
in the projections compared with previous decades, income growth
will become a relatively more important factor underlying strengthening
food and agricultural demand. Economic growth in developing countries
is especially important because consumption of food and feed are
particularly responsive to income growth in those countries, with
movement away from staple foods and increased diversification
of diets.
- Increases in global demand for food and agricultural products
provide the foundation for gains in agricultural trade and U.S.
exports. The United States will remain competitive in global agricultural
markets, although trade competition will continue to be strong.
Expanding production in a number of countries, such as Brazil,
Argentina, Canada, Ukraine, and Kazakhstan, provides competition
to U.S. exports for some agricultural commodities. A strengthening
U.S. dollar assumed in the baseline also is a constraining factor
for U.S. agricultural competitiveness and export growth in the
longer run. Nonetheless, increases in exports contribute to gains
in cash receipts for U.S. farmers.
- Steady longrun growth in the livestock sectors of developing
countries in Asia, Latin America, North Africa, and the Middle
East accounts for most of the growth in world coarse grain imports
projected during the next decade. The United States is the major
corn exporter in the world. However, with increasing use of corn
for U.S. ethanol production, particularly over the next several
years, U.S. corn exports show very little growth through 2010/11.
In response, increased corn production and exports are assumed
in this period for Argentina and Brazil. China is also assumed
to increase corn production as more U.S. corn is used in the production
of ethanol. This changes China's net corn trade by slowing the
decline in Chinese exports and the increase in its imports. Nonetheless,
China is projected to be a net importer of corn in the longer
run, reflecting declining stocks of grain and increasing demand
for feed for its growing livestock sector.
- Strong income and population growth in developing countries
generates increasing demand for vegetable oils for food consumption
and for protein meals used in livestock production. Brazil's rapidly
increasing soybean area enables it to gain a larger share of world
soybean and soybean meal exports, despite increasing domestic
feed use. Argentina is the leading exporter of soybean meal and
soybean oil, reflecting the country's large and growing crush
capacity, its small domestic market for soybean products, and
an export tax structure that favors the exports of products rather
than soybeans.
- The United States, Australia, the European Union (EU), Canada,
and Argentina have historically been the primary exporters of
wheat, although exports from the Black Sea region have grown in
the past 10 years. Over the next decade, Kazakhstan and Ukraine
are projected to have a growing importance in world wheat trade,
reflecting low costs of production and continued investments in
their agricultural sectors. However, high year-to-year volatility
in these countries' production and trade can be expected due to
weather extremes and related yield variation.
- Cotton consumption and textile production are projected to increase
in countries where labor costs are low, such as China, India,
and Pakistan. China is the largest importer of cotton in the world.
Although China's cotton imports are expected to grow more slowly
than the rapid gains since 2001, these increases account for the
gains in global cotton trade in the projections. The United States
continues as the world's leading cotton exporter, reflecting its
large production capacity and its reduced domestic mill use of
cotton as textile imports continue to grow.
- Long-grain varieties of rice account for around three-fourths
of global rice trade and are expected to account for the bulk
of trade growth over the next decade. Long-grain rice is imported
by a broad spectrum of countries in South and Southeast Asia,
much of the Middle East, nearly all of Sub-Saharan Africa, and
most of Latin America. Thailand and Vietnam remain the world's
largest rice-exporting countries, while India is projected to
surpass the United States as the world's third-largest rice exporter.
- U.S. meat exports benefit from stronger foreign economic growth
in the baseline. Although U.S. beef exports to Japan and South
Korea are projected to gradually rebuild, total U.S. beef exports
do not return to the levels attained prior to the U.S. case of
bovine spongiform encephalopathy (BSE) in 2003.
- Canada continues to be a strong competitor with the United States
in pork exports to Pacific Rim nations and Mexico. Canada is also
the major supplier of live hog imports by the United States. Brazil
also is a major pork exporter. However, the presence of foot-and-mouth
disease in Brazil limits Brazilian pork exports to some markets,
such as Japan and South Korea.
- Avian influenza is assumed to not significantly affect overall
consumer demand for poultry. However, poultry exports from countries
affected by the disease, such as Thailand, China, and Vietnam,
are expected to be limited to fully cooked products. Brazil remains
a leading poultry exporter; low production costs allow the Brazilian
poultry sector to remain competitive in global trade.
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Macroeconomic Assumptions: February 2006 Baseline
Macroeconomic assumptions underlying the USDA baseline are characterized
by steady growth near average historical rates over most of the
projection period. The sharp rise in energy and other raw material
costs is the main risk to the economic growth outlook. The baseline's
macroeconomic assumptions were completed in October 2005.
The U.S. and world economies are highly interdependent through
both global trade and financial markets. The United States continues
to be the engine of world economic growth, but economic interdependence
implies that international macroeconomic conditions have important
effects on the U.S. economy as well. While the United States continues
to play a large role in determining economic conditions around the
world, strong growth in China and India is becoming increasingly
important.
U.S. gross domestic product (GDP) growth moderates over the next
several years from 3.7 percent in 2005 toward a sustainable rate
of about 3 percent over the longer term after 2007. Nonetheless,
the United States continues to maintain its share of global GDP
at around 30 percent. World economic growth is projected to increase
to a 3.2-percent average between 2006 and 2015, after averaging
3 percent annually between 2001 and 2005.
- Despite moderate European and Japanese growth, most of the world
will be moving closer to longrun economic growth, with trend rates
in 2006 and beyond. Ongoing computing and telecommunications advances
support worldwide productivity gains throughout the baseline projections.
- Continued high oil prices assumed in the baseline modestly constrain
Asia and its manufacturing sector, which is far more dependent
on energy for GDP growth than more developed economies.
- Improved global economic performance and continued, although
slowing, population growth are expected to strengthen food demand
in the baseline. Increased global purchasing power and population
growth are essential drivers of gains in U.S. agricultural exports.
Definition of country groups
Developed economies are projected to grow at rates similar to those
of the 1990s, averaging 2.5 percent in 2006-15.
- Enlargement of the European Union (EU) to include countries
of Central and Eastern Europe implies closer integration of those
economies, creating more trade and investment opportunities within
the expanded EU.
- The EU does not, however, grow as rapidly as the United States
because of lingering structural rigidities, particularly rigid
labor laws and a very expensive social security system. Political
difficulties also constrain the benefits of economic integration,
particularly with continued restrictions on labor mobility between
EU countries and a very cumbersome EU decisionmaking process.
- Japan continues to face significant economic problems, largely
the result of long-term structural rigidities and a difficult
process of economic reform. The projections assume growth at 1.5
percent a year, with Japan's share of world GDP declining to less
than 12 percent by 2015, down from almost 18 percent in 1991.
Definition of country groups
Economic growth in developing countries is projected at about a
5-percent annual rate in 2006-15. Developing countries play an increasingly
important role in global growth in food demand and become a more
important destination for U.S. exports. Relatively high income growth,
along with large food responsiveness to income growth in these countries,
underlies this projection. Consumption and imports of food and feed
in developing countries are particularly responsive to income changes.
As incomes rise in these countries, consumers generally diversify
their diets, moving away from staple foods to include more meat,
fruits, vegetables, and processed foods (including vegetable oils).
These consumption shifts increase import demand for feedstuffs and
high-value food products. Historically, this has included increases
in U.S. exports of meat and processed foods.
- Long-term growth of 3.7 percent is projected for Latin America.
An overall improvement in macroeconomic policies should attract
foreign capital inflows and sustain growth.
- Growth rates for Southeast Asia and developing countries of
East Asia are projected at about 5 percent for the next decade,
but will still be below the very strong average growth of over
7 percent in 1986-95.
- China's economic growth has been consistently the strongest
in Asia, exceeding 9 percent between 2003 and 2005. While some
moderation is expected, China's growth is expected to average
above 7 percent over the next decade.
- India's projected average growth of around 6 percent a year
puts it in the first tier of high-growth countries. India is still
among the low-income countries, with a per capita income of less
than $600 per year. The projected high-growth rate is expected
to move a significant number of people out of poverty over the
next decade.
- Economic growth in the countries of the former Soviet Union
(FSU) is projected to average 5 percent for the next decade, continuing
strong growth following the economic declines in the transition
period of most of the 1990s. Russia, Ukraine, and other FSU countries
benefit from their shift to market economies.
Definition of country groups
A continued slowing of population growth around the world is an
important factor constraining increases in agricultural demand over
the next decade. Historically, about 70 percent of increases in
food use have been related to population growth, leaving about 30
percent driven by increasing incomes and other factors. With population
growth slowing in the projections, income growth will become a relatively
more important factor underlying food and agricultural demand growth.
- World population growth declines from an annual rate of 1.7
percent in the 1980s to an average of about 1.1 percent per year
during the projections.
- Developed and FSU countries have very low projected rates of
population growth, at 0.4 percent and 0.1 percent, respectively.
The projected annual average population growth rate for the United
States is the highest among developed countries, at 0.9 percent,
in part reflecting large immigration.
- Population growth rates in developing economies decline by almost
half between the 1970s and the end of the projection period, but
remain above those in developed countries and the former Soviet
Union. As a result, the share of world population accounted for
by developing countries increases to 81 percent by 2015.
- China and India together account for around one-third of the
world's population. China's population growth rate slows from
1.5 percent per year in 1981-90 to 0.6 percent in 2006-15. The
population growth rate in India, the world's second most populous
nation, is projected to decline from 2.1 percent to 1.3 percent
per year between the same periods. This growth narrows the gap
between India's population and China's.
- Brazil's population growth rate falls from 2.1 percent per year
in 1981-90 to 0.9 percent annually in 2006-15, and Sub-Saharan
Africa's population growth rate declines from 2.9 percent to 2.2
percent per year over the same period.
The U.S. dollar is assumed to appreciate slowly in real terms after
2005, remaining relatively high by historical standards. This high
real exchange rateexpressed in the baseline as local currency
per U.S. dollar, in inflation-adjusted termswill constrain
the growth in U.S. exports. Even so, high long-term economic growth
rates, particularly in the developing countries, will increase the
demand for U.S. exports.
- Strong relative GDP growth in the United States compared with
the EU and Japan strengthens the dollar relative to the euro and
offsets much of the trade-driven appreciation of the yen.
- The U.S. dollar stays strong because capital moves into the
United States to take advantage of well-functioning financial
markets, a relatively risk-free environment, transparent financial
accounting standards, and high expected long-term productivity
growth and financial returns.
- Due to relatively stronger global trade competition, U.S. exports
of bulk commodities and horticultural products tend to be the
most sensitive to the strong U.S. dollar among all agricultural
products.
- China, after a long period of an undervalued exchange rate and
substantial political pressure from its trading partners, has
initiated a process for appreciating its currency. To date, the
appreciation has been limited to slightly more than 2 percent.
This compares with most estimates of undervaluation of at least
30 to 40 percent. The baseline assumes that China holds its real
exchange rate constant, implying some appreciation in the nominal
exchange rate.
Definition of country groups
Global inflation rates, which declined in the 1990s (except in
the transition economies), are projected to remain relatively low
through 2015.
- The U.S. and world economies are moving solidly into an expansion
phase. As a result, inflationary pressures have begun. In response,
to constrain inflation, the U.S. Federal Reserve Board and central
banks in other countries are assumed to further increase short-term
interest rates in the initial years of the projections, although
less aggressively than in 2005.
- Because of this assumed policy response, inflation is projected
to remain below 3 percent in developed countries and the world
as a whole.
- Inflation rates in developing countries are projected to fall
from over 7 percent to just over 5 percent. Inflation in Asia
declines to rates comparable to those in developed countries.
Those in Latin America, Africa, and the Middle East, while declining,
will remain substantially above inflation rates in the rest of
the world.
- In the FSU, inflation rates come down from the high transition
rates of the 1990s to an average projected to be below 7 percent.
- Relatively low inflation rates will keep nominal interest rates
from moving to the high levels seen in the 1980s. However, as
world economies grow more rapidly, demand for credit will rise
and further boost interest rates over the longer term. In addition,
long-term U.S. interest rates rise in the short run to continue
financing the current account deficit.
Crude oil prices rose sharply from late 2002 through 2005, largely
reflecting world economic recovery and rapid manufacturing growth
in China and India, which resulted in sharply increased crude oil
demand. Hurricane Katrina put further upward pressure on world oil
prices by temporarily reducing supplies of crude oil and refined
products in the fall of 2005. The U.S. Government and the International
Energy Agency released emergency oil and fuel reserves, keeping
this transitory energy supply shock from further boosting oil prices.
Continued growth in Asian economies will keep oil demand strong
in 2006. In 2007-10, crude oil prices are expected to drop modestly
as new crude supplies help offset the rise in demand from Asia.
After 2010, oil prices are projected to rise, but only slightly
faster than the general inflation rate. These projections are generally
consistent with the U.S. Department of Energy, Energy Information
Administration's (EIA) Annual Long Term Outlook 2006 (released
December 2005).
- Underlying these price increases, world oil demand is expected
to rise due to strong GDP growth in the relatively high energy-dependent
economies in Asia, including China, India, and the rapidly growing
economies of East and Southeast Asia.
- Most of China's energy is from coal, but as consumer incomes
and automobile demand grow, an increasing share of its energy
use will be from petroleum. China has become increasingly efficient
in energy use over the past 25 years, reducing its energy intensity
by over 60 percent (using EIA's measure of energy used to produce
a dollar's worth of GDP). Nonetheless, even with this improvement,
China's energy intensity in the early 21st century is over three
times as high as in the United States.
- India has become more energy intensive over the past 20-25
years compared with the United States. In the early 1980s, India
used twice as much energy as the United States to produce a
dollar's worth of GDP, while its current energy intensity is
more than 2.5 times that in the United States. As India continues
to develop its infrastructure, especially the highway system
and electric power grid, energy intensity will rise further.
- The newly industrialized East and Southeast Asian economies
of Taiwan, South Korea, Malaysia, Hong Kong, Singapore, and
Thailand have gone from parity in energy intensity with the
United States in the early 1980s to using 50 percent more energy
to produce a dollar of GDP currently.
- Several factors are expected to constrain longrun increases
in oil prices.
- New oil discoveries, along with new technologies for finding
and extracting oil, are assumed to allow for substantial growth
in demand without significant real energy price inflation.
- The ability to switch to nonpetroleum fuels, such as coal
and natural gas, especially in industrial uses and electric
power generation, is expected to continue restraining increases
in oil prices.
- Further, the ability to substitute nonenergy inputs (such
as microchip-driven equipment) for energy is an important factor
increasing energy efficiency, which is expected to continue
to improve through the baseline due to improved energy use technology.
- The net result is that real prices of oil in the baseline are
expected to remain higher than over any sustained period historically,
largely due to rapid demand growth globally. Nonetheless, higher
oil prices are not expected to cause world economic growth to
significantly slow (see box).
Oil prices have historically affected prices of natural gas and
nitrogen-based fertilizer. However, the links between the oil and
natural gas markets have weakened significantly due to dramatic
growth in the demand for natural gas and deregulation throughout
the natural gas supply and demand system. Prices for natural gas
and nitrogen-based fertilizer have become somewhat more volatile
than prices for oil largely because natural gas is less fungible
and, as a result, its supply is more inelastic. Nevertheless, over
a longer period of time, oil and natural gas prices are expected
to move more closely together.
Global Economy Has Not Slowed With Higher Oil Prices
Despite high oil prices, growth in the United States, most
of Asia, and the large countries of Latin America is continuing
at or above trend levels. Most studies, however, suggest that
U.S. and world economic growth should have slowed significantly
due to the oil price increases that occurred in 2004 and 2005.
What kept a significant global slowdown from occurring?
- In 2004, the world economy realized record growth and
the United States had very strong growth. The impact of
any macroeconomic shock depends on the state of the economy
at the time it occurs. The stronger the economy, the larger
a shock must be to have a near-term impact.
- Oil prices, which rose to around $67 per barrel (nominal)
in early September 2005, did not reach the record high inflation-adjusted
levels of 1981. Nominal oil prices would have to reach $90
per barrel to be at the same inflation-adjusted level reached
in the supply-shock-driven price spike that year.
- Oil-surplus countries are boosting global economic growth
through financial and direct business investment, lowering
the cost of capital and offsetting some of the oil-induced
upward boost in production costs. This investment is also
helping keep interest rates relatively low.
- Because of low inflation and prudent monetary policy,
higher energy prices are not being fully passed on to final
consumers. This cost pass-through impact is significantly
weaker now than in the 1970s and 1980s, when higher fuel
prices were fully reflected in higher prices for other inputs,
which were largely passed on to consumers. In the current
competitive environment, higher fuel costs are only partially
passed on. Lower profit margins and reduced spending on
other inputs are now largely offsetting the impact of higher
fuel costs. Productivity growth has also partly offset higher
energy prices in the business bottom line. The net impact
of the recent runup in energy costs is a 1-percent increase
in the consumer price index (CPI) spread over 2 years. The
result of a similar oil price increase in the 1970s on the
CPI would have been several times as large.
- Industrial economies and the rapidly growing economies
of Asia are increasingly energy efficient. Moreover, these
economies have growing service sectors that are not energy
intensive.
- In a number of emerging markets, energy subsidies are
cushioning the effects of higher oil prices. In Brazil,
for example, the widespread use of ethanol, which benefits
from government support, has largely sheltered that economy
from higher oil prices.
- The liberalization of the world economy has increased
the ability of businesses to substitute other inputs, such
as fertilizer imports, for domestic energy on a broader
scale than in the 1980s.
Some sectors of the world economy, such as manufacturing
and agriculture, are more highly affected by high energy prices
than are others. High energy costs are a likely contributor
to the decline in U.S. manufacturing jobs since 2002, with
employers finding it too costly to operate with as many workers.
Despite the muted impact to date of higher energy prices
across the global economy, a large and persistent rise in
crude oil prices could cause a world slowdown and represents
an important risk to the solid world growth assumptions in
the baseline.
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U.S. Crops: February 2006 Baseline
Steady U.S. and global economic growth assumed in the baseline
provides a favorable demand setting for field crops, supporting
longer run increases in consumption, trade, and prices. Additionally,
the Energy Policy Act of 2005 mandates renewable fuel use in gasoline
(with credits for biodiesel) to reach 7.5 billion gallons by calendar
year 2012 (nearly double 2005's level), which underlies strong expansion
of corn-based ethanol production in the projections.
Global livestock production rises in the baseline in response to
growing incomes and demand for meats, which supports gains in world
feedgrain trade. Despite a depreciation of the U.S. dollar relative
to many currencies in the last several years, the recent strengthening
of the dollar (U.S. agricultural export-weighted basis) is projected
to continue. The stronger dollar, combined with trade competition
from Brazil, Argentina, and the Black Sea region, constrains U.S.
exports for some crops. Additionally, strong domestic use of corn
due to increased ethanol production limits U.S. export gains.
Baseline assumptions for field crops reflect the Farm
Security and Rural Investment Act of 2002 (2002 Farm
Act), which is assumed to continue through the projection
period. Income support to field crop producers is provided
by marketing assistance loans, loan deficiency payments,
counter-cyclical payments, and fixed direct payments.
During the baseline period, area enrolled in the Conservation
Reserve Program (CRP) is assumed to rise to 39.2 million
acres from about 35 million acres currently enrolled.
About two thirds of the land in the reserve is allocated
to the eight major field crops (corn, sorghum, barley,
oats, wheat, rice, upland cotton, and soybeans), based
on historical plantings.
Projected plantings for the eight major field crops in the United
States increase from 2005's level of about 243 million acres, remaining
near 245 million acres throughout the projections, as higher producer
net returns keep land in production. Yield increases also contribute
to production gains.
Plantings of different crops are influenced by expected net returns.
Net returns are determined by market prices, yields, and production
costs, with returns augmented by marketing loan benefits when prices
are low. Some benefits to growing crops may not be fully reflected
in a single year's net returns, such as agronomic benefits of crop
rotations. Nonetheless, while consideration of these multiyear factors
can also affect planting choices, measures of farmers' response
to net returns based on historical data implicitly include these
effects.
- Corn, wheat, and soybeans account for about 87 percent of acreage
for the eight major field crops. The cropping mix shifts more
to corn and away from soybeans as growth in global supply and
demand is reflected in prices and net returns. In particular,
growth in domestic ethanol production from corn increases demand,
raising corn prices and returns.
- Corn acreage rises significantly in the initial years of the
projections, as larger domestic ethanol production from corn increases
demand, raising corn prices and net returns. In the longer run,
increasing exports also underlie higher corn acreage. The increase
in corn plantings is facilitated, in part, by a reduction in soybean
area.
- Wheat plantings range between 57 million and 59 million acres.
Moderate growth in domestic and export demand is partly met by
rising yields, thus limiting price increases and incentives to
plant.
- Relatively higher energy-related production costs for corn in
2006 are expected to provide an initial boost to soybean plantings.
However, acreage planted to soybeans then declines through the
remainder of the projections as more favorable returns to corn
production draw land from soybeans.
Domestic corn use grows throughout the projections period, primarily
reflecting increases in corn used in the production of ethanol.
Global economic growth underlies increases in U.S. corn exports
after 2010/11.
- Large increases are projected in corn used for ethanol production
over the next several years. The Renewable Fuel Program of the
Energy Policy Act of 2005 mandates the volume of renewable fuel
to be included in gasoline (with biodiesel credits) for each calendar
year through 2012, reaching almost double current levels. This
program predominantly affects ethanol production, which is primarily
produced from corn. Additionally, relatively high prices for oil
contribute to favorable comparative returns for ethanol production,
providing further economic incentives for expansion in production
capacity over the next several years.
- Feed and residual use of corn rises only slowly in the baseline
as increased feeding of distillers dried grains (DDG), a coproduct
of dry mill ethanol production, helps meet growing livestock feed
demand. (Note: When a bushel of corn is used in the production
of ethanol, the entire bushel is accounted for in the fuel alcohol
use category, because the DDG coproduct, even though used in livestock
feeding, is no longer corn.)
- Gains in food and industrial components of domestic corn use
(other than for ethanol production) are projected to be smaller
than increases in population. For example, consumer dietary concerns
limit increases in the combined use of corn for high fructose
corn syrup, glucose, and dextrose to about half the rate of population
gain.
- As incomes grow in the rest of the world, especially in developing
economies, consumers shift to more meat in their diets, which
requires more feed grains for meat production. To support this
growth in meat production, global trade in feed grains expands
in the baseline. U.S. corn exports show very little growth over
the next several years as more corn is used domestically in the
production of ethanol. However, increased production and exports
from Argentina, Brazil, and China are assumed during this period.
- In the longer run, after growth in ethanol production in the
United States slows, U.S. corn exports rise in line with global
trade to support growth in global meat production. Additionally,
U.S. corn exports to Mexico are boosted because of the phase-down
and elimination of the tariff rate on over-quota corn imports
from the United States, shifting some U.S. exports to corn from
sorghum, which already has tariff-free status. As a result, U.S.
market share of global corn trade stabilizes in the latter years
of the projections.
Demand in the U.S. wheat sector grows throughout the projection
period, with moderate gains for exports and small increases in domestic
food and feed uses.
- Domestic demand for wheat in the United States reflects a relatively
mature market. After declining from 2000 to 2004, food use of
wheat resumes moderate gains. Growth is somewhat slower than population
increases, reflecting dietary adjustments by some consumers to
smaller overall portions, including lower carbohydrates.
- Feed use of wheat, a low-value use of the crop, shows only small
increases in the baseline. Projected gains in wheat feed and residual
use are driven by growth in the livestock sector, relatively lower
wheat prices compared with corn, and increases in production.
- U.S. wheat exports increase after 2008/09 as income and population
in developing countries grow, raising global wheat consumption
and trade. Competition from the European Union (EU), Canada, Argentina,
Australia, and exporters from the Black Sea region continues,
holding the U.S. market share relatively constant near 23 percent
for most of the projections. Market shares for Australia, Argentina,
and the Black Sea region increase, while shares for Canada and
the EU decline.
Domestic use of soybeans continues to rise slowly, but U.S. soybean
exports decline due to moderate production gains and increased global
competition.
- Growth in domestic soybean crush is largely driven by increasing
demand for domestic soybean meal, mostly because of rising feed
demand for expanding meat production. Domestic demand for soybean
meal is tempered somewhat by a rising volume of corn coproducts
from the production of ethanol.
- With initially large stocks, low prices help U.S. soybean exports
approach 1.1 billion bushels in the next several years. Exports
then decline to under 1.0 billion bushels as U.S. acreage is shifted
to corn to support ethanol production and competition from Brazil
strengthens. Consequently, the U.S. market share of global soybean
trade declines.
- U.S. exports of soybean meal and soybean oil also face strengthening
competition from South American producers, limiting gains in U.S.
soybean meal exports and reducing soybean oil exports.
Mill use of upland cotton in the United States continues to fall
through the projection period from its peak in 1997/98. Upland cotton
exports rise after 2006 as more cotton processing occurs in developing
countries with lower labor costs.
- Textile and apparel import quotas that had been established
under the Multi-Fiber Arrangement were eliminated at the start
of calendar year 2005. As a result of this and other factors,
apparel imports by the United States continue to increase through
the projections, reducing domestic apparel production and lowering
the apparel industry's demand for fabric and yarn produced in
the United States. Some increase in U.S. yarn and fabric exports
is projected due to trade liberalization, but the net effect is
for declining domestic mill use, which is projected at less than
40 percent of its 1997/98 level at the end of the projection period.
- The baseline assumes that the upland cotton user marketing certificate
program (Step 2) ends after the 2005/06 cotton marketing year.
U.S. upland cotton exports initially decline in 2006/07, but then
grow moderately throughout the remainder of the projections.
- Growth in the textile industry in China slows from the rapid
expansion of recent years, reducing growth in China's cotton import
demand. As a result, world cotton consumption and trade slow as
well. With global trade growth slowing, gains in U.S. cotton exports
after 2006/07 allow the United States to maintain a cotton trade
share of about 37-38 percent, down from over 40 percent recently.
Steady expansion in domestic food use of rice is projected over
the baseline, although the rate of expansion is well below rates
in the 1980s and 1990s. U.S. rice exports are projected to expand
moderately in the latter part of the projection period.
- Growth in domestic use of rice is largely due to an increasing
share of the U.S. population of Asian and Latin American descent,
with imports of specialty rices from Asia accounting for a growing
share of domestic use. Use of rice in processed foods and pet
foods also increases. Overall, these factors result in a small,
but steady, rise in per capita rice use in the United States.
- U.S. rice exports are projected to decline in 2006/07 and then
remain flat through 2009/10 as a relatively tight domestic market
keeps the U.S. price premium over Asian competitors high. In the
later years of the projections, U.S. production growth exceeds
gains in domestic use, reducing the price premium. As a result,
U.S. competitiveness in global markets improves and U.S. rice
exports increase.
- Global rice prices are projected to increase about 3 percent
per year, exceeding $8 per hundredweight (rough basis) by the
end of the baseline. Slower production growth in Asia and growing
worldwide import demand for rice are behind the steady increase
in global prices.
U.S. stocks to use ratios for corn and soybeans are up sharply
at the start of the projections after 2 consecutive years of large
production. Large corn and soybean stocks are reduced early in the
projections and stocks to use ratios for those crops decline from
their initial high levels. Later in the projections, prices rise
and encourage additional production, resulting in a leveling of
stocks-to-use ratios for these crops. The stocks to-use ratio for
wheat rises through 2008/09, largely reflecting weak exports, but
declines in subsequent years as exports strengthen.
As with corn and soybeans, the stocks to use ratio for cotton is
initially high due to large 2004 and 2005 production. Again, similar
to corn and soybeans, the cotton stocks-to-use ratio declines and
then flattens in the later years of the projections. In contrast,
reduced 2005 yields lower the rice stocks-to-use ratio, with rice
stocks and the stocks-to-use ratio gradually increasing over the
projection period.
Projected farm-level prices for corn, wheat, and soybeans reflect,
in part, movements in U.S. stocks to use ratios.
- Over the next couple of years, corn prices rise from the lows
of 2005/06 as a return to trend yields and lower acreage reduce
production and overall supplies, while increases in ethanol production
strengthen corn demand. In the longer run, yield growth is sufficient
to meet slower ethanol production gains and moderate export growth,
resulting in stable stocks-to-use ratios and prices for corn.
- Similarly, soybean stocks decline from initial large levels
and prices rise through the early years of the projections. In
the longer run, soybean prices level off as the stocks-to-use
ratio stabilizes near 8 percent, reflecting lower exports and
reduced soybean acreage as land shifts to corn.
- Greater foreign competition and weaker U.S. wheat exports initially
reduce wheat prices. Prices then rise through the remainder of
the projection period as domestic demand and exports increase
moderately and the stocks-to-use ratio declines.
Note: Sugar supply and use projections for fiscal
year (FY) 2006 are based on those in the November 2005 World
Agricultural Supply and Demand Estimates (WASDE) report,
adjusted for an increase in the FY 2006 tariff-rate quota (TRQ)
of 450,000 short tons, raw value (STRV) that USDA announced
on December 2, 2005. |
The U.S. sugar baseline projections are highly integrated with
projections for Mexico. A continuation of current sugar policies
is assumed for both countries.
- U.S. sugar policies are set out in the 2002 Farm Act; Chapter
17 of the U.S. Harmonized Tariff Schedule that includes commitments
made by the United States under Uruguay Round Agreement on Agriculture;
the North American Free Trade Agreement (NAFTA); and the Central
American and Dominican Republic Free Trade Agreement. The sugar
price support program includes the loan rate program and domestic
marketing allotments. The loan rate for raw sugar is 18 cents
per pound and the rate for refined beet sugar is 22.9 cents per
pound. After 2006, as part of the sugar marketing allotment program,
the Overall Allotment Quantity (OAQ) is calculated by the formula
set out in the 2002 Farm Act. The OAQ is the sum of desired ending
stocks and deliveries for domestic food and beverage use less
the sum of 1.532 million STRV and beginning stocks, including
any stocks owned by the Commodity Credit Corporation (CCC). Desired
ending stocks are assumed at 14.5 percent of total use (all sugar
deliveries and exports).
- Mexican sugar policies are bound by the NAFTA. Additionally,
the 20-percent tax that the Mexican Government levies on the consumption
of beverages that use high-fructose corn syrup is assumed to continue
in the projections despite being ruled inconsistent with international
trade rules by a World Trade Organization panel. This tax limits
the amount of Mexican sugar available for export to the United
States.
Growth of sugar consumption in the United States exceeds growth
in production in the baseline. U.S. sugar consumption is assumed
to grow at the same rate as does population, implying constant per
capita sugar consumption after 2006. With sugar prices nearly constant
in range of 21-22 cents a pound for most of the baseline, there
is no appreciable growth in area planted to sugar crops. Projected
increases in production come from growth in yields.
On January 1, 2007, the U.S. high-tier NAFTA tariff falls to 1.51
cents a pound for raw sugar imports and 1.60 cents a pound for refined
sugar imports, with each falling to zero in 2008. Because U.S. sugar
prices are substantially higher than world levels, the destination
of all Mexican sugar exports is the United States. With increased
stocks in Mexico following large 2005 and 2006 production, Mexican
exports of sugar are high in 2007 and 2008, but then fall back to
more moderate levels after Mexican stocks are reduced.
In the United States, high levels of sugar imports from Mexico
in FY 2007 and FY 2008 result in a domestic surplus of sugar and
market-clearing sugar prices below the minimum to avoid forfeiture
in 2008 without CCC removals. CCC is projected to own a modest 95,000
STRV at the end of fiscal year 2008.
Starting in FY 2010, additional tariff-rate quota (TRQ) sugar is
needed to supplement domestic production and NAFTA imports in meeting
domestic consumption requirements. TRQ imports grow from 1.373 million
STRV in FY 2010 to 1.639 million STRV in FY 2016. Because these
imports are needed to meet the OAQ, sugar imports above 1.532 million
STRV do not cause the OAQ to be suspended. (Technically, unfilled
OAQ from insufficient production is reassigned to imports, as per
the 2002 Farm Act.)
Legislation enacted in October 2004 ended the U.S. tobacco marketing
quota and price support program beginning with the 2005 crop year.
A buyout of tobacco quotas accompanied the termination of the program.
With the elimination of tobacco programs, which had been in effect
since 1938, producers are no longer restricted in the location or
quantity of tobacco they produce, nor do they receive price support
for the tobacco they sell. As part of the quota buyout, stocks of
tobacco currently held by grower-owned cooperatives will be sold
in a manner that does not destabilize tobacco markets.
- With the end of the tobacco program, leaf production in the
baseline initially declines as some farmers exit the industry.
Starting in 2006, expansion by the remaining growers causes production
to recover slowly as production costs decline due to the elimination
of costs associated with acquiring quota and as economies of scale
are achieved on fewer, larger farms. Additionally, production
shifts to areas such as the Coastal Plain of North Carolina and
western Kentucky, where producers can achieve more economically
viable scales of operation.
- Leaf prices fell in 2005/06 and are projected to remain lower
than during the last several years under the tobacco program,
making U.S. leaf more competitive in global trade. Exports of
tobacco leaf are projected to increase, reversing the generally
downward trend of recent years. Nonetheless, the tobacco industry
will continue to face competition from foreign producers, particularly
Brazil.
- Declining cigarette consumption in the United States is an important
factor underlying projected decreases in domestic use of tobacco
leaf. Cigarette sales in the United States are expected to continue
to fall 2-3 percent per year for the baseline period. Per capita
consumption declines as those who smoke find fewer opportunities
to smoke in public places and the cost of cigarettes increases
due to higher prices and taxes. Exports of cigarettes will likely
stabilize near current levels.
U.S. imports of horticultural products (fruit and nuts, vegetables,
greenhouse and nursery products, essential oils, beer, and wine)
are forecast to continue outpacing exports, with net imports expected
to increase about $8 billion from 2005 to 2015. Imports play an
important role in domestic supply during the winter and, increasingly,
during other times of the year. Reduced trade barriers offer U.S.
consumers increased variety, with freer trade also enhancing global
competition.
- The exchange value of the U.S. dollar vis-à-vis currencies of
other countries is an important factor affecting trade. The dollar's
overall appreciation during the next 10 years slows export demand
for U.S. horticultural products and raises U.S. import demand.
- U.S. horticulture imports are expected to grow by about 4 percent
annually through 2015. The European Union is the top source of
U.S. horticulture imports, accounting for $7.4 billion out of
a total $25.8 billion in 2005. Mexico is the second biggest source
of U.S. horticulture imports, which amounted to $6 billion in
2005. Chile, Canada, and Brazil are also large sources of horticultural
product imports by the United States. Key import commodities include
potatoes, tomatoes, bananas, grapes, frozen concentrated orange
juice, apple juice, melons, tree nuts (especially cashews), wine,
beer, and essential oils.
- U.S. horticulture exports are expected to grow by 3 percent
a year through 2015. Exports of almonds and other tree nuts as
well as noncitrus fruits will lead export growth of fruit and
nuts. Exports of fresh and processed vegetables will be stronger
than nursery and greenhouse crops. Exports of wine, beer, and
essential oils are also expected to increase. Major export markets
for U.S. horticultural products include Canada, Japan, and Southeast
Asia.
- The production value of U.S. horticulture crops is forecast
to grow by 2.3 percent annually over the next decade. The total
farmgate production value in 2005 is estimated at $47.5 billion,
with about a third of the total accruing to each of the following
three categories: fruits and nuts; vegetables and melons; and
nursery, greenhouse, and other crops.
Top of page
U.S. Livestock: February 2006 Baseline
Livestock sector projections over the baseline period reflect increasing
production, strong domestic demand, and strengthening exports for
meat. Meat exports grow through the projection period as global
incomes rise and meat demand increases. The baseline assumes a gradual
rebuilding of U.S. beef exports to Japan and South Korea. While
overall meat exports benefit from stronger foreign economic growth
in the baseline, U.S. beef exports do not return to levels attained
prior to the December 2003 discovery of bovine spongiform encephalopathy
(BSE) in Washington State.
With rising grain prices, due largely to expansion of corn-based
ethanol production, returns to U.S. red meat production are generally
lower than in recent years, slowing beef and pork production gains,
particularly in 2010-15. Larger increases in poultry output result
in poultry becoming a larger proportion of total U.S. meat consumption.
Overall, annual per capita consumption of red meats and poultry
grows from 220 pounds in 2005 to 231 pounds in 2015.
U.S. beef production increases from the sharp declines of 2003
and 2004. Despite the loss of export markets following the case
of BSE in late 2003, strong domestic demand for beef and restrictions
on imports of Canadian beef and cattle pushed producer returns higher.
Together with favorable forage and feedgrain supplies, this led
to the retention of cows and heifers for future expansion. Cattle
herds are expected to increase from cyclical lows near 95 million
head in 2004 to near 103 million head at the end of the projections,
with much of the gain occurring in the next several years. Rising
slaughter weights augment the herd expansion, leading to strong
beef production gains through 2009, with more moderate increases
over the remainder of the projections. Pork production grows slowly
as the coordinated/integrated industrial structure continues to
dampen the traditional U.S. hog cycle. Poultry production continues
to rise, but less rapidly than during the 1990s due to the maturity
of domestic demand and slower export growth.
The trend toward larger livestock systems continues throughout
the baseline period. Efficiency gains allow production to expand
while real prices generally decline. Production of all meats slows
in the second half of the projections, reflecting higher feed costs
as more corn is used in the production of ethanol.
- Strong demand for consistent, higher quality beef continues
in the domestic hotel and restaurant market, and increasingly
in the retail market. Also, the rebuilding of beef export markets
is primarily for high-quality beef. Increasing movement toward
transparent animal identification in international trade will
strengthen quality assurance and the shift toward Prime/Choice
beef.
- Increased efficiency of the U.S. hog breeding herd is reflected
in a continued shift to larger, specialized, more efficient operations
and in the decline of smaller, less efficient operations. For
the baseline, the increase in efficiency slows since larger, more
efficient operations already account for a large share of the
U.S. pig crop.
- Production coordination and market integration between the United
States and Canada continues in the hog sector. Canada is the major
supplier of live swine imports by the United States. Imported
feeder pigs produced in Canada are finished and processed in the
United States, where processing costs are lower.
- The poultry sector has benefited from gains in efficiency at
both the production and processing levels that reflect economies
of scale associated with the industry's horizontal and vertical
integration. Projected gains in efficiency over the next decade
are smaller than in the past 25 years.
Livestock prices are projected to average somewhat lower than the
high levels of 2004, with producer returns generally lower as well.
U.S. consumers buy more meat, but spend a smaller proportion of
disposable income for these purchases, continuing a long-term trend.
Over the next 10 years, consumer meat expenditures decline from
about 2 percent to 1.3 percent of disposable income. Poultry expenditures
continue to increase as a share of consumer spending on meats.
Higher levels of total per capita meat consumption are projected
over the next decade, largely reflecting continued increases in
poultry consumption. On a retail-weight basis, per capita consumption
rises to 231 pounds from the 2005 level of 220 pounds.
- Although declining toward the end of the projections, per capita
consumption of beef remains at relatively high levels through
the baseline because of strong domestic demand for high-quality
beef. Additionally, although beef exports grow, they do not return
to 2003 levels in the projections, thereby limiting price increases
seen by U.S. consumers.
- Pork consumption remains stable at about 50-51 pounds per person
throughout the projections.
- Per capita consumption of relatively lower priced poultry increases
throughout the baseline, allowing poultry to gain a larger share
of total meat consumption and meat expenditures.
U.S. meat exports rise throughout the baseline period as global
economic growth increases demand for meats. A gradual recovery in
beef exports to markets such as Japan and South Korea is also critical
to the projections. The baseline assumes that Brazil and Argentina
will not be recognized as free of foot-and-mouth disease (FMD) by
key importing countries, such as Japan, which limits trade competition
in those markets.
Beef
- U.S. beef exports primarily reflect demand for high-quality
fed beef, with most U.S. beef exports typically going to markets
in Pacific Rim nations. The loss of those markets following the
BSE case in the United States in late December 2003 caused U.S.
beef exports to be sharply reduced. However, with a gradual recovery
in U.S. beef exports to Japan and South Korea assumed in the baseline,
U.S. beef exports are projected to rise slowly.
- U.S. imports of processing beef from Australia and New Zealand
decline in the baseline as more, lower quality processing beef
comes from domestic sources with the rebuilding of the cattle
herd. The United States is a net beef importer by volume throughout
the projections as the recovery of high-quality fed beef exports
does not reach prior levels.
Pork
- U.S. pork exports benefit from reduced beef exports as import
demand shifts among competing meats. Pacific Rim nations and Mexico
remain key markets for long-term growth of U.S. pork exports.
Canada continues to be a strong competitor in these markets. Brazil
also is a major pork exporter. However, without nationwide FMD-free
status, Brazil focuses its pork exports on Russia, Argentina,
and Asian markets other than Japan and South Korea.
- While increased efficiency in U.S. pork production limits production-cost
increases and enhances the competitiveness of U.S. pork products,
longer term gains in U.S. pork exports will be determined by costs
of production and environmental regulations relative to competitors.
Such costs tend to be lower in countries with growing pork industries,
such as Brazil.
Poultry
- U.S. broiler export growth is expected to slow from the rate
of the 1990s. Major U.S. export markets include Asia, Russia,
and Mexico. Gains in these markets reflect strong economic growth
and rising consumer demand for meat, with much of the higher demand
being for poultry due to its lower cost relative to beef and pork.
U.S. producers will face strong competition from other major broiler
exporting countries, particularly Brazil. Poultry exports from
countries affected by avian influenza, such as Thailand, China,
and Vietnam, are expected to be limited to fully cooked products.
The sharp decline in beef exports in 2004 lowered the overall meat
export share of the total value of domestically produced meat from
about 11 percent in 2003 to under 8 percent, based on a measure
that weights exports of beef, pork, and chicken by farm-level prices.
While U.S. meat exports increase to over 11 percent of production
value by the end of the projections, the domestic market remains
the dominant source of overall meat demand.
Relatively favorable farm milk prices in 2004 and 2005 encouraged
increases in milk cow numbers in 2005 and 2006. Combined with an
upward trend in output per cow, this resulted in relatively strong
gains in milk production and lower prices in 2005, which are also
expected for 2006. Smaller production gains are projected over the
rest of the baseline.
- Productivity gains are expected to boost milk output per cow
and total milk production throughout the projections. Further
development of large, specialized operations in most regions will
be a significant contributor to these gains.
- Growth in milk output per cow is projected to slow in the baseline
as gains are less easily boosted by simply increasing the amount
of concentrate feeds fed.
- Milk cow numbers are expected to decline after 2006 at a relatively
slow pace. Increasing specialization of dairy farms over time
(and the associated less attractive salvage uses for dairy capital
and other inputs) makes exit rates from milk production lower
than in past decades.
- Commercial use increases slightly faster than the growth in
population, reflecting slow growth in domestic demand for dairy
products. Cheese and butter demand benefit from greater consumption
of prepared foods and increased away-from-home eating. Per capita
consumption of fluid milk, however, is expected to decline slowly.
- Farm-level milk prices decline in 2006 due to relatively large
production increases. Prices then rebound somewhat in 2007 as
milk production gains are smaller. Projected milk prices are then
relatively flat for several years, but rise over the last part
of the baseline as production gains slow further. Nonetheless,
milk price movements are projected to be less than the general
inflation rate after 2007.
Top of page
U.S. Agricultural Sector Measures: February 2006 Baseline
Longrun developments for the U.S. farm sector reflect steady domestic
and international economic growth, which support gains in consumption,
trade, and prices. Although export competition is projected to continue,
global economic growth, particularly in developing countries, provides
a foundation for gains in world trade and U.S. agricultural exports.
Combined with increases in domestic demand, particularly growth
in corn used for ethanol production, the results are generally rising
market prices and cash receipts. Rising production expenses and
lower government payments offset the gains in cash receipts and
other sources of farm income, holding net farm income relatively
stable from 2006 to 2015, after declining from the historically
high levels of 2004 and 2005. Consumer food prices are projected
to rise more slowly than the general rate of inflation.
Net farm income falls over the next several years from the historically
high levels of 2004 and 2005, and then stabilizes over the remainder
of the projections.
- Decreases in cash receipts, lower government payments, and higher
production expenses push net farm income down in 2006. Growing
demand then boosts cash receipts after 2006. Rising farm production
expenses and reductions in government payments to farmers largely
balance the gains in cash receipts and other farm income, keeping
projected net farm income relatively flat near $54 billion a year.
Nonetheless, net farm income remains higher than the average in
the 1990s of about $48 billion.
Direct government payments to farmers are projected to fall from
$23 billion in 2005 to under $13 billion in 2011-14, and then to
$11.5 billion in 2015 when the tobacco quota buyout payments end.
- As projected market prices rise, price sensitive payments decline
toward the end of the projections. Consequently, fixed direct
payments under the Farm Security
and Rural Investment Act of 2002 (2002 Farm Act) and conservation
payments account for a larger share of direct government payments.
- With government payments declining, the agriculture sector relies
increasingly on the market for more of its income and the share
of income provided by government payments falls. Government payments,
which represented more than 8 percent of gross cash income in
2005, account for less than 5 percent at the end of the projections.
- To account for the possibility of both higher and lower prices
than the baseline's deterministic (point estimate) prices, a stochastic
estimation process has been adopted to project expected direct
government payments. This process captures the asymmetry in farm
program outlays due to stochastic (random) shocks (see box).
Projected Government Payments Reflect Stochastic Estimation Procedure
To reflect variability in agriculture due to stochastic (random)
shocks, projections for government payments for 2007-15 reflect
stochastic estimates for price sensitive payment
categories. These payment categories include marketing loan
benefits, counter-cyclical payments (CCPs), and dairy market
loss payments (2007 only). Commodities covered are corn, barley,
sorghum, oats, wheat, rice, cotton, soybeans, and milk. USDA
adopted this approach to capture the effects of random shocks
on expected budgetary outlays and government payments.
In the stochastic procedure, statistical distributions
for projected prices and production (where appropriate)
are used to derive weighted average, mean expected estimates
for payments. This is done because government payments are
asymmetric across a distribution of expected prices. For example,
counter-cyclical payments for corn are zero for market prices
above $2.35 per bushel. However, since there is a distribution
of expected prices around any deterministic (point-estimate)
price projected in the baseline, with a $2.35 projected corn
price, there is some probability of lower prices occurring,
and thus some likelihood of corn counter-cyclical payments
being made. Consequently, mean expected payments calculated
across the distribution of prices for any year are different
than payments calculated at the deterministic price projected
for that year.
The Economic Research Service's Food and Agricultural
Policy Simulation (FAPSIM) model was used to generate
price distributions for each commodity, with corresponding
production distributions calculated that are consistent with
those price distributions. FAPSIM is an econometric model
of the U.S. crop and livestock sectors that includes cross
commodity linkages and dynamic effects over time.
The major source of stochastic variability in agriculture
is yields. Thus, random yield shocks were used
in FAPSIM to represent this uncertainty. While there is variability
in other supply and demand components, less of that variability
is stochastic in nature.
Comparisons of stochastic and deterministic payments
for corn are shown in the following two charts. The
first chart indicates that stochastic marketing loan benefits
for corn are above deterministic benefits and that stochastically
derived marketing loan benefits extend into higher price ranges.
These results reflect the nonlinearity of marketing loan benefits
calculated as a payment rate times production. Lower prices
(with higher payment rates) correspond to higher production
levels, which give a larger increase in estimated benefits
than the reduction in benefits associated with higher prices
(with a lower payment rate) and corresponding lower production.
A similar analysis of CCPs for corn is summarized in the
second chart. Results indicate that deterministic CCPs are
at their maximum level when season average prices are at or
below the loan rate of $1.95 per bushel. Stochastic CCPs,
in contrast, are less than the maximum for a range of prices
below $1.95 because the probability of prices greater than
$1.95 is taken into account. Similarly, deterministically
derived CCPs are zero for season average prices of $2.35 per
bushel and above. Stochastic CCP estimates, in contrast, are
above zero for a range of prices above $2.35 because the distribution-based
approach takes into account the probability of lower prices.
|
Total production expenses increase at near the general inflation
rate in the projections. These expenses are divided into three categories
in the chart above: farm-origin (seed, feed, and feeder livestock),
manufactured (fuel, fertilizer, pesticides, and electricity), and
other (labor, interest, and other expenses).
- The largest percentage increase is for "other expenses," reflecting
increases in labor expenses and interest costs. Labor expenses
rise as sector output increases and wage rates rise. Projected
increases in interest costs reflect higher interest rates, as
well as higher debt facilitated by rising gross cash income.
- Increases in manufactured-input expenses reflect continued relatively
high oil prices and expansion of crop production. After large
increases in 2004-06 due mostly to the rise in oil prices, these
expenses increase at about the general rate of inflation through
the rest of the projections.
- Farm-origin expenses rise less than the general inflation rate,
reflecting moderate increases in most farm-commodity prices. Feed
expenses rise the most as demand for corn for use in the production
of ethanol competes with feed demand and pushes corn prices higher.
- Cash operating margins tighten over the projections period as
expenses rise while decreases in government payments slow gains
in gross cash incomes. By 2015, cash expenses represent about
80 percent of gross cash income, compared with an average of 73
percent in 2000-05.
Stable net farm income projected in the baseline assists in asset
accumulation and debt management.
- Gains in farmland values and real estate assets (representing
about 80 percent of total farm assets) reflect increases in agricultural
revenues, as well as rising demand for nonagricultural land uses,
such as housing and recreation.
- There is considerable variation in the growth of farmland prices
across the country. This reflects a variety of factors, including
differences in land quality and location, demand for urban development
and recreational use, credit conditions, nonfarm investment opportunities,
and production risks and weather uncertainties unique to each
region's agriculture. As the general economy continues to expand,
demand for land for nonagricultural uses contributes to rising
farmland values. Farmland in areas with recreational amenities
also will increase in value as second-home market demand remains
strong.
- Farm debt moves up less rapidly than asset values in the projections,
resulting in gains in overall farm sector equity. The debt-to-asset
ratio declines moderately from 13.4 percent in 2005 to about 12.4
percent at the end of the projections, continuing a decline from
over 20 percent in the mid-1980s.
Retail food prices are projected to increase less than the general
inflation rate.
- Among foods purchased for consumption at home, projected price
increases are generally strongest for more highly processed foods
such as cereals and bakery products and fats and oils. For these
foods, prices are related more to processing and marketing costs
than to farm-level prices and, therefore, rise at a rate near
the general inflation rate.
- Prices for food away from home reflect a large service component,
with gains held down by competition in the fast-food and foodservice
industries.
The value of U.S. agricultural exports rises in the baseline due
to increasing global income and food demand, which raise both export
volumes and prices. Strong domestic economic growth and consumer
demand also boost imports throughout the projections, continuing
to reflect U.S. consumer preferences for a wide variety of foods.
- Strengthening world economic growth, particularly in developing
countries, provides a foundation for gains in trade and U.S. agricultural
exports. However, competition in global markets remains strong.
Overall, the value of U.S. agricultural exports is projected to
grow from $64.5 billion in fiscal year 2006 to $84 billion in
2015.
- High-value product (HVP) exports continue to grow in importance,
accounting for almost two-thirds of the value of U.S. exports
by the end of the projections period. Much of the growth in HVP
exports is for animal products and horticultural products. Most
of the growth in the value of bulk commodity exports (grains,
oilseeds, cotton, and tobacco) reflects expected price increases
and gains in volume for grains.
- U.S. agricultural imports rise to $84 billion in 2015, reflecting
gains in consumer income and demand for a large variety of foods.
Strong growth in horticultural imports is assumed to continue,
contributing over half of the overall agricultural import increase.
Imports of processed foods are expected to continue growing in
importance, accounting for almost half of U.S. agricultural imports
by 2015.
- Overall, the U.S. agricultural trade balance is projected to
show a moderate surplus through most of the baseline, although
it will remain smaller than in the past two decades. Although
the trade balance is a closely watched measure, it is not an indicator
of export competitiveness or import dependence. Trade is a means
of providing for the needs and wants of consumers that are not
satisfied domestically (such as bananas and coffee) or are produced
more cheaply elsewhere (such as fresh-cut flowers and pineapples).
The lower U.S. agricultural trade surplus does not signal reduced
competitiveness of the U.S. farm sector, but rather U.S. consumers'
preference for a wide variety of foods and beverages.
Top of page
Global Agricultural Trade: February 2006 Baseline
With strong world economic growth, global agricultural trade is
projected to rise throughout the baseline. Agricultural trade will
remain very competitive, reflecting expanding production in a number
of foreign countries.
The growing economies of developing countries provide a foundation
for gains in demand for agricultural products and increases in trade.
Broad-based economic growth and increasing urbanization lead to
diet diversification in most developing regions, generating increased
demand for livestock products and feeds, as well as for fruits,
vegetables, and processed products. Developing-country import demand
is further reinforced by population growth rates that remain nearly
double the growth rates of developed countries.
International trade in animal products, however, remains heavily
dependent on demand from developed countries and from market access
achieved under existing global trade agreements. Trade is also affected
by disease-related concerns such as bovine spongiform encephalopathy
(BSE), avian influenza (AI), and foot-and-mouth disease (FMD). Strong
policy support for domestically produced meat is expected to motivate
growth in feed grain trade, especially to those regions where limited
land availability or agroclimatic conditions preclude expanding
domestic crop production, such as North Africa, the Middle East,
and East and Southeast Asia.
Strong competition is expected in international commodity markets,
not only from traditional exporters such as Argentina, Australia,
and Canada, but also from countries that are making significant
investments in their agricultural sectors, including Brazil, Russia,
Ukraine, and Kazakhstan.
Rapid expansion of ethanol and biodiesel production in some countries
is projected to have a significant impact on global demand for corn
and vegetable oils and on world price relationships. The continued
expansion of oilseed crushing capacity in a number of countries
is expected to augment the demand for oilseeds more than for protein
meals and vegetable oils.
Baseline trade projections to 2015 are founded on assumptions concerning
trends in foreign area, yields, and use, and on the assumption that
countries comply with existing bilateral and multilateral agreements
affecting agriculture and agricultural trade. The baseline incorporates
the effects of trade agreements and domestic policy reforms in place
or signed by November 2005.
Domestic agricultural and trade policies in individual foreign
countries are assumed to continue to evolve along their current
paths, based on the consensus judgment of USDA's regional and commodity
analysts. In particular, economic and trade reforms underway in
many developing countries are assumed to continue. Similarly, the
development and use of agricultural technology and changes in consumer
preferences are assumed to continue evolving based on past performance
and analysts' judgments regarding future developments.
Rising unabated since the early 1990s, global trade in soybeans
and soybean products has surpassed wheat—the traditional leader
in agricultural commodity trade—and total coarse grains (corn,
barley, sorghum, and other). Continued strong growth in global demand
for vegetable oil and protein meal is expected to maintain soybean
and soybean-product trade well above wheat and coarse grains trade
throughout the next decade.
- These three major commodity groupings—wheat, coarse grains,
and oilseeds (including soybeans)—compete with each other
and with other crops for increasingly limited temperate cropland.
However, previously uncropped land in tropical regions of Brazil
and Indonesia is being converted to soybean and palm oil production.
- Virtually no growth in overall global wheat and coarse grain
trade occurred in the 1990s, largely reflecting reductions in
imports by the former Soviet Union (FSU) and Central and Eastern
Europe (CEE). In the coming decade, overall gains in global grain
trade come from a broad range of countries, particularly from
developing countries in Africa and the Middle East.
- In the projections, total area planted to all crops changes
little in most countries other than Brazil, Argentina, and Indonesia.
Growth in global production is derived mostly from rising yields.
The growth rate in crop yields has slowed somewhat during the
last several decades and is projected to continue to do so.
- Slower growth in aggregate crop production is offset by slower
growth in world population. Nonetheless, population is a significant
factor driving overall growth in demand for agricultural products.
Additionally, rising per capita income in many countries generates
growth in demand for vegetable oils and livestock and horticultural
products.
Definition of country groups
Growth in wheat imports is concentrated in those developing countries
where robust growth in income and population underpins increases
in demand. Important growth markets include Sub-Saharan Africa,
Brazil, Mexico, and Egypt. World wheat trade (including flour) expands
by 20 million tons (18 percent) between 2006 and 2015 to more than
130 million tons.
- Egypt maintains its position as the world's largest importing
country, as imports climb slowly to nearly 9 million tons. Imports
by Brazil, another large importer, are projected to surpass 7
million tons. Brazil's climate does not favor wheat, and in some
key wheat-producing states, winter corn is expected to have better
returns than wheat.
- Imports by developing countries in Sub-Saharan Africa, North
Africa, and the Middle East rise 7 million tons and account for
nearly 40 percent of world wheat trade. In most developing countries,
little change in per capita wheat consumption is expected but
imports expand modestly because of population growth and limited
potential to expand production. Nigeria has emerged as a major
wheat importer.
- Changing consumption patterns will boost the wheat imports of
some major developing countries. In Indonesia, diversification
of diets and strong economic growth are projected to increase
per capita wheat consumption. Mexican consumers are projected
to continue substituting wheat for corn in their diets.
- Stocks of low-quality wheat are large at the beginning of the
projection period. Low prices for this feed-quality wheat during
the next couple of years, and lower wheat-to-corn price ratios
during most of the projection period, enable wheat to compete
effectively with corn for feed use in a number of countries. South
Korea, for example, is projected to substitute 1 million tons
of feed wheat for corn annually by 2015.
Definition of country groups
The top five wheat exporting nations (the United States, Australia,
the European Union (EU), Canada, and Argentina) account for about
75 percent of world trade from 2006 through 2015. This is down from
the average of 85 percent during the latter part of the 1990s, mostly
due to increased exports from the Black Sea area. U.S. wheat exports
are projected to account for about 23 percent of global wheat trade,
down from 25 percent in recent years.
- Shares of the world wheat market held by Canada, the EU, and
the United States decline slightly, offsetting increases by Australia,
Argentina, Ukraine, and Kazakhstan.
- In Canada, increased demand for barley and oilseeds is expected
to cause wheat area to decline, which causes Canadian exports
to trend slowly downward.
- The EU lowered the set-aside rate from 10 percent to 5 percent
in 2004 in response to the drought-reduced 2002 crop and low stock
levels. These projections assume that the set-aside rate reverts
back to 10 percent for the duration of the projections.
- Russia, Ukraine, and Kazakhstan have become significant wheat
exporters in recent years. Low costs of production and investment
in their agricultural sectors have enabled their world market
share to climb to 14 percent in recent years. Exports from Ukraine
and Kazakhstan are projected to continue gaining market share,
more than offsetting a slight decline in the share held by Russia.
However, because of the region's weather extremes, high year-to-year
volatility in production and trade can be expected.
- Exports by Turkey, China, and other minor exporters trend slowly
downward during the projection period.
- Although India has exported some wheat in recent years, exports
are expected to cease as stocks are drawn down.
Growth in trade of coarse grains is strongly linked to expansion
of livestock activities in regions unable to meet their own forage
and feed needs. Key growth markets include Mexico, North Africa
and the Middle East, China, and Southeast Asia.
- Corn is the dominant feed grain traded in international markets.
Corn accounts for an average of 76 percent of all coarse grain
trade through the projection period, followed by barley (16 percent),
and sorghum (5 percent).
- The commercialization of livestock feeding has been a driving
force behind the growing dominance of corn in international feedgrain
markets as well as the gains in global protein meal markets. Hogs
and ruminants, such as cattle and sheep, are capable of digesting
a broad range of feedstuffs, making demand relatively price-sensitive
across alternate feed sources. However, as pork and poultry production
become increasingly commercialized, higher quality feeds are used.
- World coarse grain trade is projected to increase about 2 percent
a year, with corn accounting for a growing share. Mexico's composition
of imports accounts for most of the shift. Following the 2002
and 2003 drop in U.S. sorghum production and exportable supplies,
Mexico's imports of kibbled corn (processed corn that is tariff
free) rose sharply, reaching a record 2.6 million tons (whole-corn
equivalent) in 2004/05. Under the North America Free Trade Agreement
(NAFTA), Mexico's over-quota tariff on U.S. and Canadian corn
is eliminated by 2008. As Mexico's over-quota tariff on corn imports
is further reduced, Mexico's grain imports continue shifting from
sorghum to corn. After 2008/09, kibbled corn imports are entirely
replaced by whole-grain corn. Mexico's corn imports continue to
rise through the rest of the projections, while sorghum imports
resume growth after 2011/12.
Definition of country groups
World coarse grain trade expands about 19 million tons (18 percent)
from 2006 to 2015. About two-thirds of global coarse grain supplies
are used as animal feed. Industrial uses, such as starch, ethanol,
and malt production, are relatively small but growing. Food use
of coarse grains, concentrated in parts of Latin America, Africa,
and Asia, has generally declined over time as consumers tend to
shift consumption toward wheat, rice, and other foods as their incomes
rise.
- Steady longrun growth in the livestock sectors of developing
countries in Asia, Latin America, North Africa, and the Middle
East is projected to account for most of the growth in world imports
during the next decade.
- Mexico's corn imports are projected to rise from 7.3 million
tons in 2006 to more than 13 million tons in 2015. Imports will
be stimulated by rising poultry production and a steady reduction
in Mexico's over-quota tariff on corn imports from the United
States to zero by January 1, 2008. Some corn imports will substitute
for imports of sorghum, which already have tariff free status.
- North Africa and the Middle East experience continued growth
in import demand for grain and protein meals through 2015, as
rising populations and increasing incomes sustain strong demand
growth for domestically produced animal products.
- Increasing meat imports will limit coarse grain imports in Japan,
South Korea, and Taiwan. By 2015, low-priced feed wheat is projected
to replace about 1 million tons of South Korean corn imports.
- The EU's imports of corn from other Eastern European countries,
particularly Romania and Bulgaria, are expected to increase as
the latter countries prepare for accession to the EU.
Definition of country groups
The United States dominates world trade in coarse grains, particularly
corn. However, increasing use of corn for U.S. ethanol production
is assumed to limit export growth. The U.S. corn sector faces increased
competition from exports by non-EU Eastern Europe, Argentina, and
Brazil. Still, the U.S. share of world corn trade is projected to
grow from 60 percent in recent years to 63 percent by 2015 as few
countries have similar capability to respond to rising international
demand for corn.
- Argentina, with a small domestic market, remains the world's
second largest corn exporter. As Argentina's economy expands,
investments and planted area gradually return to corn production
over the baseline, with exports projected to rise from 11 million
to 16 million tons. Argentina and other South American countries
increase corn exports to Chile to support its expanding pork exports
to South Korea.
- The Republic of South Africa continues exporting about 2 million
tons of corn to its neighboring countries. Uncertainties associated
with its land reform program are assumed to limit increases in
production.
- Corn exports from non-EU Eastern European countries, primarily
Romania and Bulgaria, rise to nearly 3 million tons by 2015. Favorable
resource endowments, increasing economic openness, greater investment
in their agricultural sectors, and preparation for joining the
European Union are behind the projected gains in production and
trade.
- Brazil's corn exports nearly double during the next decade,
rising to 4.5 million tons, in response to higher corn-to-soybean
price ratios. Brazil targets niche market demand for nongenetically
modified grain. However, strong growth in domestic demand from
its livestock sector limits more rapid expansion.
- China's corn exports decline in the baseline, reflecting strengthening
domestic demand driven by its expanding livestock sector. It is
assumed that Chinese policy will tend to favor importing soybeans
rather than corn.
As more U.S. corn is used to produce ethanol, China is assumed
to increase it corn production, slowing its decline in exports and
its increase in imports. Nonetheless, China is projected to become
a net corn importer in 2012/13 as demand for livestock feed overtakes
China's internal supplies of corn. China continues to export corn
throughout the projection period, although in declining amounts,
due to regional supply and demand differences. Northern China runs
a corn surplus, while southern China has a corn deficit.
- Corn is the favored crop in northeast China. Proximity to South
Korea and other Asian markets provides a nearby source of demand,
while various government measures—including waiver of certain
transportation construction taxes, and a rebate of the value-added
tax on exported corn—keep corn exports competitively priced
in international markets. High ocean-freight rates raise the delivered
cost of U.S. corn to Asian markets, another factor that keeps
Chinese corn competitive. Shipments of corn from northeast China
to the country's southern markets are limited by China's high
internal transportation costs.
- China experienced a large buildup of corn stocks in the mid-
to late 1990s due to a combination of favorable weather and local
self-sufficiency policies that boosted grain production to record
levels. In the last 6 years, China's corn consumption exceeded
production, and stocks have declined sharply. Because a continued
drop in stocks is unsustainable, China is projected to increase
imports and reduce exports, and to eventually become a net corn
importer, as livestock feeding continues to increase in response
to income growth and rising meat demand.
Definition of country groups
Global barley trade expands throughout the baseline, driven by
rising demand for both malting and feed barley.
- Feed barley imports by North African and Middle Eastern countries—where
barley is preferred as a feed for large populations of camels,
goats, and sheep—grow steadily through the period. In the
mid-1990s, corn overtook barley as the principal coarse grain
imported by these countries, due mainly to rising poultry production.
This pattern is expected to continue through the projection period.
However, the North Africa and Middle East region is expected to
remain the world's largest barley importing area.
- Saudi Arabia—the world's foremost barley importer—accounts
for over 30 percent of world barley trade through the baseline.
Saudi Arabia's barley imports are used primarily as feed for camels,
goats, and sheep.
- International demand for malting barley is boosted by strong
growth in beer demand in many developing countries, notably China—the
world's largest malting barley importer. China's beer demand is
rising steadily due to growth in incomes and population. China's
breweries use rice and other grains, as well as malting barley,
which limits the growth in imports of malting barley. Expansion
in China's brewing capacity is being aided by foreign investment
in the industry. Australia and Canada are China's main sources
of malting barley imports.
Definition of country groups
Historically, global barley exports have originated primarily from
the EU, Australia, and Canada. However, Ukraine and, to a lesser
extent, Russia, have emerged as important competitors in international
feed barley markets and remain so throughout the baseline period.
- Barley production is expected to increase in the EU-25 as a
result of Common Agricultural Policy (CAP) reform and EU enlargement.
The abolition of EU intervention for rye, combined with higher
barley prices in the acceding countries, will stimulate the allocation
of more area to barley production. Within the enlarged EU-25,
barley trade will rise. However, EU-25 exports to non-EU countries
are projected to hover around 3 million tons over the projection
period (16 percent of world trade).
- The FSU remains a major barley exporter throughout the baseline
as exports exceed 5 million tons. Together, the FSU and EU-25
account for about 50 percent of world barley trade throughout
the baseline.
- Malting barley is a different variety and quality than feed
barley and commands a substantial price premium over feed barley.
This premium is expected to influence planting decisions in Canada
and Australia and, in both countries, malting barley's share of
total barley area rises in the latter half of the projection period.
Definition of country groups
World sorghum trade, which averaged nearly 7 million tons during
the last decade, declines to just above 5 million tons by the middle
of the projection period before rising through the remainder of
the baseline. This trade pattern is driven almost entirely by Mexico.
- Mexico is the world's leading sorghum importer, although its
imports fell in 2002 and 2003 due to reduced U.S. production and
exportable supplies. Since then, Mexico's sorghum imports have
recovered somewhat. However, sorghum's share of Mexico's total
coarse grain imports declined as imports of duty-free kibbled
corn increased rapidly. Whole-grain corn imports also are rising
as Mexico's over-quota tariff on U.S. and Canadian corn is reduced
to zero by 2008. In the projections, Mexico's sorghum imports
increase slightly in the later years, but remain around 3 million
tons. Even at this reduced import level, Mexico is expected to
account for more than 55 percent of world imports.
- Japan imports a fairly constant volume of sorghum (1.3 million
tons) throughout the period to maintain diversity and stability
in its feed grain supplies.
- The United States is the largest exporter of sorghum, accounting
for about 80 percent of world trade in recent years. During the
projection period, the U.S. share declines slightly as its sorghum
exports to Mexico account for a smaller share of world trade.
- The primary sorghum markets for Argentina, the world's second
largest exporter, are Japan, Chile, and Europe. In Argentina,
prices and profitability favor planting other crops, particularly
soybeans and corn, so sorghum exports only rise slightly during
the projection period.
- Brazil has begun to export small quantities of sorghum and the
volume is projected to rise during the projection period. Because
of special soil characteristics in the Campos Cerrado region of
Brazil, sorghum is increasingly planted between crops of soybeans
or cotton to protect soils from the negative effects of solar
radiation.
Strong income and population growth in developing countries generates
increasing demand for vegetable oils for food consumption and for
protein meals used in livestock production. World soybean trade
grows at an average annual rate of 3.6 percent through the projection
period, compared with rates of 2.8 and 2.2 percent for soybean oil
and soybean meal.
- Many countries with limited opportunity to expand oilseed production
continue investment in oilseed crushing capacity, such as China
and some countries in North Africa, the Middle East, and South
Asia. As a result, import demand for soybeans grows faster than
for either soybean meal or soybean oil throughout the baseline.
However, strong competition in international protein meal markets
is expected to pressure crushing margins and shift some of the
import demand for oilseeds to cheaper meals. The steady competitive
pressure of new oilseed crushing capacity is expected to result
in some inefficient crushers going out of business.
- China's expansion of domestic crushing capacity instead of importing
protein meal and vegetable oil significantly influences the composition
of world trade by raising international import demand for soybeans
and other oilseeds rather than for soybean products.
- Brazil's rapidly increasing soybean area enables it to gain
a larger share of world soybean and soybean meal exports, despite
increasing domestic feed use. Its share of world exports of soybeans
plus the soybean equivalent of soymeal exports rises from about
32 percent in recent years to 45 percent by 2015.
- The expansion in Argentine soybean area slows as incentives
to grow corn and sunflower seed improve and conversion of new
farmland approaches its practical limits.
Definition of country groups
- The EU has been the world's leading importer of soybean meal,
and until 2002, of soybeans. However, increases in grain and rapeseed
meal feeding are expected to continue to slow the growth in EU
soybean and soybean meal imports. Increased barley production
due to 2003 CAP reforms, greater supplies of coarse grains from
acceding countries, and more rapeseed meal available as a result
of the biofuels initiative, combine to slow the growth of soybean
meal consumption. These factors are only partially offset by an
increase in the dairy quota that would increase soybean meal feeding.
- China will face policy decisions regarding tradeoffs in producing
or importing corn and soybeans. The baseline projections assume
that Chinese policies will tend toward maintaining domestic corn
production and importing soybeans. Thus, China accounts for over
70 percent of the world's 27-million-ton growth in soybean imports
over the next 10 years. Significant investments in oilseed crushing
infrastructure by China drive strong gains in soybean imports
as China seeks to capture the value added from processing oilseeds
into protein meal and vegetable oil.
- East Asia's trade outlook is dominated by a continuing shift
from importing feedstuffs to importing meat and other livestock
products. As a result, the growth in this region's import demand
for protein meal and oilseeds slows over the baseline. This process
occurs most noticeably in Japan.
- As Argentina seeks to operate its expanding crushing facilities
at full capacity, it is projected to increase its soybean imports
from Brazil and other South American countries to nearly 3 million
tons a year by the end of the period.
Definition of country groups
- The three leading soybean exporters—the United States,
Brazil, and Argentina—account for more than 90 percent of
world trade throughout the baseline.
- With continuing area gains, Brazil maintains its position as
the world's leading exporter of soybeans and soybean products.
Although combating soybean rust disease increases production costs,
soybeans remain more profitable than other crops in most areas
of Brazil. It has been assumed that some land in southern Brazil
will shift from oilseed to corn production during the middle of
the projection period in response to higher corn prices and more
limited competition from U.S. corn exports. Still, with expanded
soybean plantings in the Central West, the growth rate for Brazil's
soybean planted area is projected to average nearly 4 percent
a year, reaching about 30 million hectares by 2015.
- In the United States, projected declines in soybean acreage
and increased domestic crush limit exportable supplies.
- Argentina's export tax structure favors domestic crushing of
whole seeds and exporting the products. To more fully utilize
its large and expanding crushing capacity, while diverting some
land to corn production and exports, it is assumed that Argentina
will import some soybeans from Brazil, Paraguay, Uruguay, and
Bolivia. Argentina's soybean exports hold steady at about 7 million
tons.
Definition of country groups
- Despite increased domestic feeding of grains, the EU remains
the world's principal destination for soybean meal throughout
the projection period. Lower import prices for meal relative to
soybeans pressure crush margins, curtailing soybean imports in
favor of soybean products.
- The North Africa and Middle East region becomes a larger importer
of soybean meal in the projections as the demand for livestock
feed boosts import demand in a number of countries.
- Latin America, Southeast Asia, and the former Soviet Union remain
important growth markets for soybean meal, provided avian influenza
can be controlled.
- Mexico's strong growth in demand for protein feed and vegetable
oils is projected to continue. The crushing industry is also expected
to continue expansion. This will boost soybean imports but slow
the growth in soybean meal imports.
Definition of country groups
- Argentina, Brazil, and the United States remain the three major
exporters in international protein meal markets.
- Argentina, the world's largest exporter, increases its share
of soybean meal exports from less than 45 percent in recent years
to more than 53 percent in the latter portion of the projection
period. The export shares of Brazil, the United States, and other
exporters fall. Argentina maintains high utilization of its growing
crushing capacity and continues to expand soybean meal exports
by importing soybeans from Brazil and other South American countries.
- In Brazil, strong growth in domestic meal consumption due to
rapid expansion of the poultry and pork sectors limits increases
in soybean meal exports. Also, domestic soybean crushing capacity
is not expected to grow as fast as soybean meal consumption.
- Significant expansion in domestic crushing in China and large
imports of oilseeds in the baseline result in Chinese soybean
meal exports rising to more than 1 million tons annually by the
end of the projections. China's exports, along with small increases
in exports from South America, keep international protein meal
markets very competitive.
- The EU continues to be a small but steady exporter of soybean
meal to Russia and other East European countries. India remains
an exporter, although export volume declines as domestic use,
especially for poultry feed, rapidly expands.
Definition of country groups
- Import demand for soybean oil rises in nearly all countries
and regions. Although India and China remain the world's largest
importers, income and population growth in the North Africa and
Middle East region and in Latin America (particularly Central
America and the Caribbean) drive more rapid gains in soybean oil
imports.
- In India, lower tariffs on soybean oil (held in check by World
Trade Organization (WTO) tariff-binding commitments) compared
with tariffs for other vegetable oils support continued large
imports of soybean oil. Other factors that contribute to India
becoming the world's largest soybean oil importer include burgeoning
domestic demand for vegetable oils and limitations on domestic
production of oilseeds. Low yields, associated with erratic rainfed
growing conditions and low input use, inhibit growth of oilseed
production in India.
- In China, growing demand for high-quality vegetable oils outpaces
domestic oil production and fuels a small expansion in soybean
oil imports. Land-use competition from other crops constrains
area planted to vegetable oil crops in China.
Definition of country groups
A strong emphasis on exporting soybean products pushes Argentina's
and Brazil's combined share of world soybean oil exports from less
than 80 percent in recent years to about 85 percent by the end of
the baseline.
- Argentina is the leading exporter of soybean oil, reflecting
the country's large crush capacity, its small domestic market
for soybean oil, and an export tax structure that favors the exports
of products rather than soybeans. Increases in crush and soybean
oil exports are supported by gains in Argentine soybean production
due to extensive double-cropping, further adjustments to crop-pasture
rotations, and the addition of marginal lands in the northwest
part of the country. Argentina also increases soybean imports
from other South American countries in order to more fully utilize
its crushing capacity.
- Brazil's expansion of soybean production into new areas of cultivation
enables it to increase both its volume of soybean oil exports
and its share of world trade.
- The European Union and the United States remain the world's
next largest soybean oil exporters throughout the baseline, although
their export volumes and shares of world trade continue a downward
trend. In the EU, exportable supplies of vegetable oils are limited
by the growth in biodesel.
Definition of country groups
Global rice trade is projected to grow 2.5 percent per year from
2006 through 2015. By 2015, global rice trade is projected to reach
nearly 33 million tons, nearly 15 percent above the record set in
2002.
- Long-grain varieties account for around three-fourths of global
rice trade and are expected to account for the bulk of trade growth
over the next decade. Long-grain rice is imported by a broad spectrum
of countries in South and Southeast Asia, much of the Middle East,
nearly all of Sub-Saharan Africa, and most of Latin America. Indonesia,
Nigeria, Iran, Iraq, the Philippines, and Saudi Arabia are typically
the top long-grain import markets.
- Medium- and short-grain rice account for 10-12 percent of global
trade, with Japan, South Korea, Taiwan, Turkey, and Jordan the
major importers. Expansion in medium-grain rice trade is projected
to be much smaller than for long grain. Among the Northeast Asian
buyers, only South Korea is projected to increase purchases over
the next decade. All rice imports by Japan, South Korea, and Taiwan
are the result of commitments under the WTO.
- Aromatic rice, primarily basmati and jasmine, makes up most
of the rest of global rice trade. Aromatics typically sell at
a substantial price premium over long- and medium-grain varieties.
Aromatics are imported mostly for high-income consumers.
- Indonesia and Bangladesh, two of the world's leading rice-importing
countries, will experience rising food demand due to growing populations.
However, land constraints and already high cropping intensities
indicate little opportunity for either country to significantly
expand production. Thus, their imports are projected to increase
over the next decade and account for 22 percent of the increase
in rice trade.
- Sub-Saharan Africa and the Middle East are also major destinations
for internationally traded rice. In both regions, strong demand
growth is driven by rapidly expanding populations. But opportunities
to expand production are limited due to constraints such as agroclimatic
conditions in the Middle East and infrastructure deficiencies
in Sub-Saharan Africa. Sub-Saharan Africa accounts for 30 percent
of the increase in world rice trade during the projection period.
Definition of country groups
Asia remains the largest rice-exporting region throughout the projection
period.
- Thailand and Vietnam, the world's largest rice-exporting countries,
account for nearly half of all rice exports in the baseline. Both
countries produce and export primarily long grain rice. Rising
production, mostly due to higher yields, and declining per capita
consumption, drive the expansion in exports from both countries.
- The United States is projected to remain the third largest rice-exporting
country during the first half of the baseline. Rising domestic
demand and a slower growth rate in yields constrains the expansion
of U.S. rice exports.
- Midway through the baseline, India becomes the world's third-largest
rice exporter. India has been a major exporter since the mid-1990s,
although export levels have been rather volatile, primarily due
to fluctuating production and stock levels. Exports are projected
to increase over the next decade as high internal prices stimulate
production and exportable supplies. India exports both low-quality,
long-grain rice and smaller quantities of high-quality basmati
rice.
- In recent years, Pakistan has replaced China as the world's
fifth-leading exporter. This is due primarily to declining exports
from China rather than an increase in Pakistan's exports. Pakistan
has little ability to expand rice area, and its agricultural sector
is confronting a growing water shortage. Rice exports are stable
at around 2.2 million tons. Pakistan exports both high-quality
basmati and low-quality, long-grain rice.
- Rice exports from China have declined from over 2 million tons
in most years during the half-decade ending in 2003 to less than
0.9 million tons during the last few years. Production growth
is projected to be very slight during the next decade as higher
yields are nearly offset by stagnant-to-declining area planted
to rice. Consumption growth is negligible as declining per capita
rice consumption offsets rising population. China exports high-quality,
medium/short-grain rice to Northeast Asian markets and low-quality,
long-grain rice to Sub-Saharan Africa and some lower income Asian
markets.
Definition of country groups
Completion of the Multi-Fiber Arrangement (MFA) phaseout at the
end of calendar year 2004 eliminated the quotas that governed much
of the world's trade in textiles and apparel for more than 30 years.
These restrictions were removed per WTO commitments by the United
States, the EU, and Canada, and their removal has been a major influence
on world trade patterns in cotton, textiles, and apparel. For apparel
production, labor costs are decisive in determining the location
of production. As a result, textile production and raw cotton consumption
will increase in countries where labor costs are low. High-cost
labor markets in Europe and East Asia continue to reduce their cotton
imports through the baseline.
- The textile industries in China, India, and Pakistan are the
major beneficiaries of the MFA's elimination.
- China has been importing record amounts of cotton following
the depletion of government stocks in 2003/04. Its cotton imports
are expected to grow more slowly than the rapid increase since
2001. However, during the next decade, the increase in cotton
imports by China is projected to more than offset the decline
in imports by other countries, and China accounts for 46 percent
of world imports by 2015.
- India's textile industry has been accelerating in recent years,
but cotton use is not expected to grow as rapidly as in China,
despite India's growing textile exports. India's export orientation
and pace of income growth have generally lagged China's, limiting
its growth in cotton consumption.
- In recent years, Turkey's textile industry has benefited from
favorable trade access to the EU, its major export market for
textiles and apparel. However, the end of the MFA quotas will
now give lower cost competitors the same favorable access to EU
markets. Turkey's cotton imports are projected to decline slowly
over the next 10 years.
- The EU, Japan, Taiwan, and South Korea all steadily reduce their
cotton imports as textile trade reforms and/or higher wages in
these countries drive textile production to lower wage countries.
Definition of country groups
Globalization is expected to continue to move raw cotton production
to countries where resource endowments and technology result in
the lowest production costs. Land is a key input factor. Traditional
producers with large land bases suitable for cotton production are
expected to benefit from post-MFA trade patterns. Such producer/exporter
regions include the United States, Sub-Saharan Africa, Australia,
and Brazil.
- The United States continues as the world's leading cotton exporter
throughout the baseline period, with annual exports remaining
around 16 million bales. Exports dip to 15.5 million bales in
2006/07, but grow to almost 17 million bales by 2015/16.
- The Central Asian countries of the former Soviet Union have
been the principal competitors of the United States in world raw
cotton markets for the last decade. However, government policies
in Central Asia promoting investment in textiles have increasingly
resulted in exports of textile products rather than exports of
raw cotton.
- Sub-Saharan Africa has overtaken Central Asia as the principal
competitor. Its cotton exports have risen in large part due to
economic reforms. A large correction in the foreign exchange value
of the currency of the major cotton exporting countries of West
Africa in 1994 led to nearly a decade of growth in West Africa's
cotton production. As West Africa's production gains began to
lag at the end of the 1990s, several southern African countries
began increasing their cotton production, aided by reforms such
as ending marketing board monopolies. Continued increases in output
are expected as producers take advantage of more export-oriented
government policies.
- Improved Indian cotton crop yields, in part due to the adoption
of genetically modified cotton, have raised India's output in
recent years, increasing exportable supplies. This is expected
to continue in the early part of the projection period.
Increased market access achieved under global trade agreements
was behind much of the gains in animal product trade over the past
decade. During the baseline, per capita income growth in a broad
number of importing countries is the driving force behind rising
global meat demand. However, animal diseases remain a dampening
force in world meat trade.
- BSE in Canada and the United States has resulted in changes
in Canada's beef and live cattle exports to the United States.
In 2004 and 2005, Canadian beef exports recovered all of the decline
following its 2003 BSE case. Canadian exports to the United States
of live cattle under 30 months of age are assumed to continue.
Canadian beef exports, after an initial decline associated with
the increase in live cattle exports, are projected to remain flat
over the baseline period.
- EU enlargement results in greater shipments between the EU-15
and the acceding 10 countries and restrained trade of meat outside
the EU-25. EU beef exports remain well below the annual WTO export-subsidy
limit of 817,000 tons, as a stronger euro limits their competitiveness
and policy changes lower beef production and the need to remove
beef from the domestic market.
- Argentine exports rose sharply during the last 2 years. However,
export taxes and other recent policy changes have made Argentina's
exports less competitive. Beef exports are projected to decline
throughout the baseline, but remain above their pre-2004 levels.
- The baseline assumes that Brazil does not gain nationwide FMD-free
status. However, exports from Brazil's expanding pork sector are
expected to be competitive in Russia and other price-sensitive
markets, and in non-FMD-free markets.
- U.S. poultry exports face strong competition from other countries.
Brazilian poultry production and exports rise rapidly, bolstered
by low production costs and very competitive prices in international
markets.
- Because of avian influenza, Thailand's exports of chilled and
frozen poultry meat have been banned by importers. However, Thailand's
exports of fully cooked poultry products have expanded rapidly
and partially offset the loss of uncooked poultry exports.
Definition of country groups
Traditionally, beef trade occurred largely between developed countries.
However, Brazil and India have become large exporters of lower quality
beef that is imported by lower income countries and countries with
less stringent import restrictions concerning FMD. The baseline
assumes gradual recovery of U.S. and Canadian exports to Japan and
South Korea.
- Higher income countries, such as Japan and South Korea, increase
beef imports, reflecting domestic cattle sectors that are constrained
by land availability. These imports are primarily of higher quality
beef. U.S. beef exports to these countries are projected to rebuild.
Overall imports by Japan and South Korea rise to levels attained
prior to the U.S. BSE case in 2003, but the United States loses
market share because of the increased presence of Australia and
New Zealand in these markets.
- U.S. beef imports, primarily of grass-fed ground beef and other
processed products from Australia and New Zealand, decline slightly
through the period. However, rising Asian imports of beef from
Australia and New Zealand enable these exporters to maintain their
trade levels.
- Robust import growth of U.S. higher quality beef is projected
for Mexico.
- The baseline assumes that Russia's tariff rate-quota (TRQ) for
beef, first imposed in 2003, remains in effect until 2009. In
the longer run, the growth in Russia's beef imports resumes as
rising consumer demand outpaces gains in domestic production.
Russia remains a large market for EU-subsidized beef exports as
well as Brazilian beef.
Definition of country groups
- Mexican pork imports increase nearly 400,000 tons between 2006
and 2015, making Mexico the fastest growing pork importer. Increases
in income and population are the primary drivers of Mexico's increasing
demand for pork products.
- Higher income countries of East Asia, such as Japan, Hong Kong,
and South Korea, increase pork imports as their domestic hog sectors
are constrained by environmental issues and imported feed costs.
In South Korea and Japan, consumer concerns about BSE boost pork
consumption and imports.
- As with beef, the baseline assumes that the TRQ that Russia
imposed for pork in 2003 remains in effect until 2009. Although
the TRQ initially lowers pork imports, Russia remains a major
destination for competitively priced pork exports from the EU
and Brazil as demand growth continues to exceed Russian meat producers'
ability to respond.
- China's pork production and exports continue to rise rapidly.
Although its imports also rise, China's net pork exports rise
slightly during the projection period.
Definition of country groups
- Russia is expected to remain the world's largest poultry importer,
with gains in consumer income fueling increased demand for poultry
products. Even with rapid gains in production, Russia's domestic
output is expected to lag gains in domestic demand.
- Russia's TRQ on poultry imports is assumed to remain in effect
thorough 2009. Over this period, the low-tariff quota expands
slowly and the over-quota tariff rate is gradually lowered. During
the quota period, imports from the United States are given the
largest share of the quota, averaging approximately 75 percent
of the total.
- In Mexico, the world's second largest importer, strong economic
growth raises per capita poultry consumption. Domestic poultry
production rises rapidly but lags increasing consumer demand.
- Poultry consumption growth in China is met largely by expanding
domestic production, but imports are also projected to grow.
- Exports from Thailand and China will be limited to fully cooked
products for most of the projection period because of avian influenza.
Most of these exports are likely to be higher value boneless products.
For Thailand, exports of cooked chicken products replace some,
but not all, of the decline in its frozen poultry exports.
- Poultry imports into Saudi Arabia continue to rise throughout
the baseline. However, consumer preference for freshly killed
birds also keeps domestic production growing.
- Rising consumer incomes in many developing countries is expected
to provide growing markets for lower valued poultry products.
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Baseline Tables
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