Here's a brief recap of the events that got us here:
A drought and fire in Russia last summer, coupled with export restrictions imposed by the government there, helped bring about soaring wheat prices. Meanwhile, bad harvests in the U.S., Europe, Australia and Argentina have contributed to soaring agricultural commodity prices on international markets.And, despite an increase in production, we are seeing larger increases in demand:
Growers from Canada to Russia boosted annual output of wheat, rice and feed grain by 16 percent since 2000, not enough to keep up with the 20 percent gain in demand, U.S. Department of Agriculture data show. While a Bloomberg survey of 25 analysts shows the agency on Feb. 24 may forecast a 3.5 percent increase in U.S. corn planting, the government says world stockpiles will equal 15 percent of use, the lowest since 1974.In addition, we are seeing increased demand from developing countries:
Strong income growth and rising populations in developing countries have increased demand for high-value food products, such as meats, dairy products, and a greater variety of fruit and vegetables, as well as a broad range of prepared foods. Growing urbanization also contributes to dietary changes. City dwellers are exposed to new food varieties, and their lifestyles often lead to less cooking and increased purchases of prepared foods.As a result of these developments, the USDA says we'll see an increase in planting next year:
Developing countries now account for more than half of all U.S. agricultural exports. Mexico and China are two major markets for U.S. agricultural exports, and countries such as India, Indonesia, and Colombia are becoming important export destinations. Among the large number of developing-country trading partners, 16 low- and middle-income countries account for 37 percent of U.S. agricultural exports, up from 15 percent in 1990. Since 1990, the average growth of U.S. exports to these countries has exceeded 10 percent annually.
While low- and middle-income countries are becoming increasingly important export markets for the U.S. agricultural sector, high-income markets are moving in the opposite direction. Nine high-income countries, most prominently Canada and Japan, accounted for 55 percent of U.S agricultural exports in 1990, but their share fell to 43 percent by 2008. Average annual growth in U.S. exports to these high-income countries was just 2.4 percent during that period.
An additional 9.8 million acres will be planted to crops in 2011, the largest year-over-year increase in planted acreage to the eight major crops in the U.S. since 1996, according to USDA Chief Economist Joe Glauber.All of these stories highlight several underlying trends.
Here are the acreage levels that Glauber said USDA currently expects:
- Corn: 92.0 million, up 3.8 million acres
- Soybeans: 78.0 million, up 0.6 million acres
- Wheat: 57.0 million acres, up 3.4 million acres
- Cotton: 12.8 million acres, up 2.9 million acres
The level of area planted to the eight major crops at 255 million acres will be the highest total for these crops since 1998, Glauber said. "It will be a real challenge to get to the 10 million acres needed," Glauber said.
"Despite increased production of corn and soybeans, grain and oilseed markets are still forecast to be tight due to strong export demand and strong demand for biofuels," Glauber said. "Unless this year’s weather is better than normal or plantings increase more than expected, stock levels for corn and soybeans should see only modest rebuilding in 2011/12. This will likely mean continued volatility in those markets."
2.) Notice that this is a supply/demand issue. In broad terms, as the standard of living has increased in various countries diets have changed, increasing demand. At the same time, supply is understandably constrained because there are only so many acres that can be farmed meaning global yields have to increase.
3.) From the U.S.' perspective, this is a great opportunity, as agriculture is an area where we clearly excel.