International Demand Is Pushing Up Farm Prices

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Pigs are flying, along with cattle, grains, and other US agricultural commodities from domestic ports to international markets, all because of macroeconomics. US farm commodities are flying through the farmgate and into container ships and cargo planes. That college class you avoided may have explained the reason for today’s higher commodity prices and provided some clues to the future. Currently agricultural exports and the ag trade surplus are at record levels, and pushing them upward is the global recovery to the recessionary economy.

At the height of the global recession in 2009 agricultural exports were weak, and after some dismal forecasts, USDA has estimated 2010 farm exports at $108 billion, which was up substantially from the $96 billion in 2009. Additionally, 2011 US ag exports are projected at $126.5 billion, and that would surpass the 2008 record by more than $11 billion. When agricultural imports like bananas and coffee are subtracted from agricultural exports like pork and grain, the resulting difference is expected to be a $41 billion surplus for 2011. Thanks to you, agriculture is about the only US production sector that is making money instead of spending it. The data are part of a report by Texas A & M economist Jose Pena which reflects the impact of the value of the dollar against foreign currencies.

Ironically, the higher values for exports are the result of sharply higher prices for those commodities, but to a foreign buyer whose money is worth more than the dollar, it takes less money to buy US farm commodities. Pena says tighter global stocks, as reported Jan 12 in the USDA’s World Agricultural Supply Demand Estimates, are helping push prices higher and exports will continue to climb in value. Those tighter stocks result from the Russian drought, Australian floods, and overall higher demand from people with more money to spend on food. The impact of the dollar value is shown by the 4% increase in export volume and 12% increase in export value. Pena quotes government sources as saying $1 billion in exports supports 8,000 jobs, and the fiscal 2011 projection for agricultural exports would represent over 1 million US jobs.

The Texas A & M economist says while the depreciated dollar has influenced the demand for US agricultural products, the weakening dollar aggravates the US deficit/debt since more lowered value dollars are required to buy imported goods. And imports make up the bulk of US trade. Pena says USDA has increased its forecast for agricultural imports by more than 8% from 2010 to an estimated $85.5 billion in 2011. That represents a 2-3% increase in volume from 2010 and a 6% increase in value.

While trade with Canada and Mexico is driven by NAFTA, and those countries are always at the top for buying and selling, some changes have occurred. Pena says, “While Mexico moved slightly below China to the 3rd largest export destination in the USDA-ERS November export forecast for 2011, Canada remains the largest export market for U.S. agricultural products.” He says farm exports to Mexico have tripled since the NAFTA agreement was signed in 1994, and exports to Canada have increased 360% to $16.7 billion in 2010.

Summary:
While the easing of the global recession has lead to more demand for US farm products, macroeconomic factors, such as the value of the US dollar against other currencies has resulted in greater agricultural exports. The combination of currency valuation and increased demand has contributed greatly toward the rising value of commodity prices.

Source: The Farm Gate, http://www.farmgate.illinois.edu



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