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Farm economy stays strong - USDA

DANIEL LOOKER 02/23/2012 @ 11:14am Business Editor

At the USDA Agricultural Outlook Forum Thursday, Chief Economist Joseph Glauber said the department expects another good year in 2012 for agriculture though it’s not likely to match 2011. That was a record year for prices, exports and farm income,  which not surprisingly prompted increased production worldwide, Glauber told some 2000 people gathered at the agency’s session in Arlington, Virginia.
 
Slowing growth in biofuels and a return to trend yields should increase stocks later this year, and reduce price volatility, Glauber said.
 
“Despite slower growth, 2012 should be another good year for U.S. agricultural exports,” Glauber said. That’s because a cheaper dollar should more than compensate for slowing global economic growth.
 
The $131 billion U.S. exports for 2012 crops would be the second highest ever. China, will be one of our largest export customers but isn’t likely to remain in first place.
 
Glauber said “the incredible response we’ve seen to record high prices,” which led to increased agricultural production around the world has led to a situation similar to the mid 1990s, when high prices led to more food production outside of the U.S. “But unlike then, we’ve seen very strong demand for feed grains,” he said. 

STRONG DEMAND FOR FEED GRAINS

That strong demand will remain for feed grains for much of this calendar year, but Glauber expects feed grain prices to moderate after harvest if the U.S. has the trendline corn and feed grain crops factored in to USDA’s projections.

We’re expecting prices for most field crops to be lower,”  Glauber said.  Corn prices could average around $5 in 2012, down about 20% from 2011 but still fairly strong.

Net cash income for the ag sector of the U.S. economy will fall, but would still be the second highest on record at $96.3 billion if the assumptions in USDA’s annual 10-year projections hold up.

USDA isn’t expecting ethanol to be a growth market this year. From 2005 to 2010, an expanding ethanol industry was increasing demand for corn by about 700 million bushels a year. It was flat last year and USDA projects a 50 million bushel drop in corn used for the fuel in 2012.

In recent weeks, ethanol production has fallen by about 4%, Glauber said, and margins have as well. With the expiration of the blenders tax credit for ethanol, prices will have to be low enough for the fuel to remain competitive in the export market. Glauber expects U.S. exports of ethanol to Brazil to decline this year.

Glauber said that outlook still has uncertainties: the size of South America’s crops and dry conditions in the southern U.S.

Texas had a devastating drought and dry conditions have spread into the Southeast. “Unfortunately dry conditions have persisted in the region.”

USDA projects about 30 million acres of land remaining in the Conservation Reserve Program.

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