The U.S. economy — and with it, the U.S. farm economy — had a “very positive” year in 2003 and appears poised to experience another sound and prosperous year in 2004, according to USDA's chief economist.
Speaking at USDA's Agricultural Outlook Forum in Arlington, Keith Collins said that after several years of a weak and variable global economy, 2003 saw the U.S. economy pull itself together and begin a recovery, with the economy growing 3.2 percent.
“The pump has been primed with liquidity, expansionary fiscal policy, resulting from the budget deficit and the Jobs and Growth Act of 2001, the lowest interest rates since the 1950s and, during the second half of the year, increasing business fixed investment,” he said.
“With these factors all in place again in 2004, combined with an expectation of even stronger business investment spending, a depreciating dollar, few signs of inflation and stronger foreign economic growth, macroeconomic forecasters foresee GDP growth of 4.5 to 5 percent. This together with stronger employment should provide a large and growing domestic demand base for farm products.”
Collins said foreign GDP is expected to grow about 3 percent in 2004, after averaging less than 2 percent annually over the past three years.
Asia, Latin America
“Japan is finally growing, and Asia and Latin America are expected to propel developing country growth to the highest rate in four years. With the European economies lagging, foreign economic growth likely will not push over the 3 percent line, which has often been a level associated with an upward surge in U.S. farm exports.”
The improving domestic demand base is reflected in the demand for food, which also drives demand for animal feed, said Collins, who gave the traditional “Outlook for the U.S. Farm Economy” for the estimated 1,400 participants in this year's Forum.
While monthly retail sales of grocery stores, food and beverage stores and food service establishments typically run higher than year-earlier sales, the U.S. economic slowdown in 2002 noticeably slowed sales, he noted.
“As the U.S. economic recovery took hold in 2003, sales moved up nicely and strong sales are again likely for 2004,” he said. “Of course, the types of products consumers have been purchasing are changing as attitudes toward diet and health change.”
Collins said domestic industrial demand for farm products is also looking up. “As an example, monthly ethanol production is setting new record highs almost every month. In 2004, U.S. ethanol production should reach 3.25 billion gallons and account for more than 1.1 billion bushels of corn use.”
USDA believes stronger foreign economic growth should translate into improved U.S. agricultural exports in 2004. The Agriculture Department's latest forecast puts 2004 farm exports at $59 billion, up $2.5 billion from fiscal year 2003.
“This forecast is $500 million below our previous forecast, which was published prior to the U.S. finding of BSE,” he said. “The new export forecast reflects, in part, the assumption that the markets that are now closed to U.S. beef exports will remain closed for 2004.
“This is not a forecast of what countries will do. It simply reflects our standard forecasting procedure to assume the policies of foreign countries remain in place until they are changed.”
Any U.S. export forecasts must also be tempered with the realization that new and emerging export competitors are playing an increasing role in world trade.
“To see this, add up the soybean exports of Brazil and Argentina, the coarse grain exports of China and the Former Soviet countries and the wheat exports of India and the Former Soviet countries,” he said. “These exports grew from less than 10 million tons in 1994 to about 85 million in 2002 — from 2 percent of world grain and soybean trade to 25 percent.”
Collins said the markets for most major crops are expected to be in close supply and demand balance for the remainder of the 2003 crop years and for the 2004 crop years.
“When prices are strong, we often see global supply roar back, overtake demand and prices plunge. While we should expect production rebounds in 2004 from last year's poor weather in Europe and the Former Soviet Union, there are reasons to think global markets will remain robust.”
Chief of those is that there is a “strong foundation” under global grain demand, he says.
“For the 2003 crop years, global grain demand is expected to exceed global grain production for the fifth consecutive year. “This gap means that by the end of the summer, global grain stocks as a percent of use will be at the lowest level since 1972 for wheat, 1981 for rice and the lowest on record for coarse grain. Stocks are also low compared with history for soybeans and cotton.
“With low stocks and the improving global economy, it is likely that even with a return to normal yields in the key producing countries, crop stocks will remain low and prices firm for most economies.”