FAPRI: World economic growth to remain strong

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Despite continued high energy prices, the Food and Agricultural Policy Research Institute expects world economic growth to remain strong in the coming decade, at around 3 percent per year, boosting consumption of vegetable oil, dairy products, and meat in many parts of the world.

This projection is part of FAPRI's 2006 agricultural outlook presented to Congress last week. The FAPRI baseline will be used to analyze proposed changes in the Farm Bill to be rewritten by Congress by 2007.

The outlook runs from crop years 2005/06 to 2015/16. According to FAPRI, solid commodity prices and a persistently weak U.S. dollar in industrialized trading countries will keep U.S. exports strong for the next 10 years.

FAPRI is an economic research group with centers at Iowa State University and the University of Missouri-Columbia. The projections incorporate recent macroeconomic forecasts and currently adopted agricultural policies. Other highlights from FAPRI's 2006 agricultural outlook include:

  • Food prices are expected to increase at a slower rate of inflation than in the Consumer Price Index (CPI). Food inflation grew at 2.4 percent in 2005, with a projected increase of 2 percent or less each year in the 10-year outlook.
  • U.S. farmers will continue to be squeezed by high production costs and low returns in both livestock and crops in 2006. FAPRI projects that net farm income will decline by $16.8 billion in 2006 when compared to 2005.
  • Milk supplies will outpace demand for dairy products. High milk prices in 2004 and 2005 encouraged more production. As a result price projections drop from $15 per hundredweight received the last two years to $13.49 in 2006.
  • Further weakness in the all milk price is expected in 2007 as milk supplies continue to outpace demand. Milk prices increase for the remainder of the baseline as milk supplies are more closely balanced with demand.
  • Annual growth in milk production is expected to exceed 2.5 percent in 2006. After that annual milk production growth is expected to average just over 1 percent through the baseline projections.
  • Dairy cow inventories are expected to exceed 9.1 million head in 2006. Inventories decline for the remainder of the baseline, as growth in milk yields requires fewer dairy cows to balance milk supplies with overall demand growth.
  • Growth in the use of milk powder in Asia allows the U.S. to expand its net exports by 88 percent
  • Grain prices remain high, given strong import demand on world markets. Wheat prices remain above $150 per metric ton. Corn, sorghum, and barley prices steadily increase, from the $90-$94 range to the $117-$134 range per metric ton.
  • The brightest spot in the baseline report is demand for ethanol fuel made from corn. The 2006 baseline foresees faster growth in ethanol production fueled by higher petroleum prices and provisions of the Energy Policy Act of 2005. The report estimates that at current trends, ethanol demand will exceed corn exports by market year 2007-08.
  • Concentration in soybean production will continue. Argentina, Brazil, and the United States increase their combined production share from 82 percent to 84 percent of world production. Brazil overtakes the United States as the largest soybean producer and exporter in the world.

The multi-year 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 University of Missouri FAPRI Web site. http://www.fapri.missouri.edu

University of Missouri, Iowa State University



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