U.S Dollar Won't Strengthen Until 2007

The United States will remain competitive in most global agricultural markets, although trade competition will continue to be strong. Compiled by staff

Published on: Feb 14, 2005

USDA's Agricultural Baseline Projections to 2014 predicts that steady U.S. and global economic growth provides a favorable demand setting for field crops and livestock. The demands supports longer run increases in consumption, trade and prices.

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.

Additionally, a strengthening U.S. dollar assumed in the baseline starting in 2007 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 to U.S. farmers and improvement in the financial condition of the U.S. agricultural sector," the report says.

Current farm policy allows for continued farmer flexibility in planting decisions with the continuation of marketing assistance loans, countercyclical payments and fixed direct payments. The projections predict that government payments will take on a less important role over time as a greater share of gross cash income comes from the marketplace due to growing domestic and export demands.

"Increasing gross cash income assists in asset accumulation and debt management, raising farm equity and reducing the debt-to-asset ratio in the sector," the baseline says. "Net farm income projections for the next decade average over $60 billion, compared to $47.7 billion in the 1990s."

Plantings shift from soybeans to corn

The baseline projects plantings for the eight major field crops to increase slowly over the next 10 years from a low of 247 million acres to nearly 252 million acres in 2014. "Yield increases also contribute to production gains, limiting price increases and reducing the need for more land to be cropped," the report says. "Thus, the eight-crop plantings total remains considerably lower than the more than 260 million acres planted in 1996."

Consideration of market prices, yields, and production costs sets up the following conditions for the future, according to the baseline projections.

  • Corn, wheat, and soybeans account for about 87% of acreage for the eight major field crops. The cropping mix shifts somewhat more to corn and away from soybeans as growth in global supply and demand is reflected in prices and net returns.
  • Corn acreage rises gradually through the projections as increasing exports and domestic demand lead to rising prices and net returns. The increase in corn plantings is facilitated, in part, by a reduction in soybean area.
  • China is projected to be a net importer of corn in the baseline starting in 2007/08, reflecting declining stocks of grain and increasing incomes which raise consumer demand for meat and derived demand for feed for a growing livestock sector.
  • Wheat acreage falls below 59 million acres early in the projections period, reflecting lower prices. A moderate increase in land planted to wheat is projected over the rest of the baseline as gains in demand exceed increases in supply provided by rising yields, thus raising prices and providing incentives to plant.
  • Soybean plantings initially decline from a relatively high level in 2004 in response to lower prices caused by record 2004 production. Soybean acreage declines further through 2009 as higher prices and net returns for competing crops, particularly corn, provide incentives to switch some land from soybeans. Soybean plantings then stabilize in the remaining years of the projections.
  • 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. Their share of world wheat exports is projected to increase from 4-6% in recent years to about 11% by the end of the period. However, high year-to-year volatility in these countries’ production and trade can be expected.
  • Removal of textile and apparel import quotas, resulting from the completion of the Multi-Fiber Arrangement (MFA) phaseout on December 31, 2004, is expected to have a major influence on world cotton production and trade. Textile production and raw cotton consumption will increase in developing countries, such as China, India, and Pakistan, where labor costs are lowest. Countries in Europe and East Asia with higher cost labor markets will continue to reduce their cotton imports through the baseline.

Livestock industry faces greater competition

Overall meat exports benefit from stronger foreign economic growth in the baseline.

Increased production of pork and poultry allows Brazil to become very competitive in world meat trade, enabling Brazil’s pork and poultry exports to sustain strong growth.

Canada also continues to be a strong competitor with the United States in pork exports to Pacific Rim nations and Mexico. Live hog imports from Canada will continue to affect the U.S. pork industry.

The baseline assumes a gradual rebuilding of U.S. beef exports to Japan, reflecting the October 2004 U.S.-Japan beef trade framework agreement that will permit the resumption of beef trade between the two countries. A gradual recovery in U.S. beef exports to South Korea is also assumed. However, the baseline projections doe not see overall beef exports returning to the levels attained prior to the U.S. case of bovine spongiform encephalopathy (BSE) in 2003.