Analysts with the Food and Agricultural Policy Research Institute briefed Congress last week on the 2010 agricultural economic baseline projections, known as the annual FAPRI Outlook. Despite the recent slowdown in the world economy and the supply response to dramatic price increases in the previous couple of years, which depresses commodity prices in the short run, FAPRI projects that an economic turnaround and bioenergy mandates will grow the demand for food, feed and fuel. This will stimulate trade and price recovery over the rest of the decade, according to the FAPRI economists.
FAPRI is an economic research group with centers at Iowa State University and the University of Missouri-Columbia. These outlook projections incorporate recent macroeconomic forecasts and currently adopted agricultural policies.
Significant recovery in world economy projected for 2010 & 2011
According to the FAPRI Outlook, the slowdown in the world economy in 2009 proved to be deeper and more widespread than originally anticipated, with a negative annual rate of real GDP growth of 1.9%. However, significant recovery is projected for 2010, with long-term real GDP growth of 3.3% reached by 2011. The Asian economies withstood the economic crisis, posting positive growth in 2009 (for example, China at 8.5% and India at 6.4%), and thus are leading the world economic recovery.
The U.S. dollar made significant gains in 2009 but it resumes its real depreciation over the rest of the decade against the currencies of Australia, the European Union, New Zealand, Argentina and China.
Economic recovery has to contend with stronger energy prices
The economic recovery will be accompanied by projected stronger energy prices. The FAPRI economists expect that the continuing recovery of crude oil prices along with bioenergy mandates will grow the demand and strengthen the world price of ethanol through 2019. Global net trade in ethanol is projected to increase by 3.12 billion gallons and reach 4.15 billion gallons by 2019.
Biodiesel mandates in the Americas and Europe are expected to sustain the high price of biodiesel and vegetable oil, with growth in consumption mostly met by domestic production, as the traditional South American soybean oil exporters also face domestic mandates.
Other highlights from FAPRI's 2010 world agricultural outlook
Bumper crop production in key wheat producing and importing countries, coupled with a slow economy, will depress the world wheat price over the next two years. But an economic turnaround will strengthen grain prices.
The world corn price is projected to follow a similar pattern, decreasing in 2009-10 but strengthening thereafter. In the long run, grain prices are expected to remain strong because of growing demand for food, feed and fuel purposes.
A production shortfall in 2009-10, particularly in India, is expected to raise the world price of sugar by almost 60%. The price is expected to decline by 26% in the following year as countries recover. However, it continues to remain high, as more sugarcane is used for ethanol in Brazil, and sugar imports of countries like China and the EU remain strong.
Demand for food and biodiesel firm-up outlook for soybean oil
World prices of oilseeds are expected to remain relatively stable in 2009-10 as the supply rebound (especially for soybeans) is met with increased demand resulting from the economic recovery. Vegetable oils lead the oilseed complex, as demand for both food and biodiesel use are expanding firmly over the period.
Increasing demand for protein meal from the growing and intensifying livestock sector in Asia supports the price of meal despite large supplies of meal. The large supplies are due to the strong crush that's being driven by vegetable oil demand and prices, such as for soybean oil.
Argentina, Brazil, Paraguay and the United States continue to dominate world soybean production, while China continues to dominate world soybean imports. Palm oil remains the cheapest and most widely traded edible oil.
World meat market continues to be affected by food safety concerns
Food safety concerns continue to affect the world meat market in the short run. However, sustained income and population growth will raise per capita meat consumption and will fuel the expansion in world trade. Over the next decade, meat trade is projected to increase by 22.5%, and recovery in demand, coupled with higher grain prices, is expected to strengthen all meat prices. Brazil and the United States will gain significant shares in the world meat market.
Dairy prices declined significantly in 2008-09 as a result of the economic slowdown. In the long run, growth in population and income continues to put upward pressure on dairy prices. Australia, New Zealand and the European Union remain the big exporters. While exports from the European Union stagnate, Argentina and Brazil will expand their dairy exports. The Asian countries, Russia and Algeria are the main importers in the world dairy markets.
The multiyear FAPRI projections provide a starting point for evaluating and comparing scenarios involving macroeconomic, policy, weather and technology variables in world agricultural trade. More information is available at the ISU (www.fapri.iastate.edu) and University of Missouri (www.fapri.missouri.edu) FAPRI Web sites.