July 28, 2011

US and global agriculture could be in "a golden era" that may continue for at least another decade, a key US government policy analyst said Wednesday (Jul 27).

How much higher prices can go will be determined largely by the magnitude of global producers' response to price signals, particularly in major exporting countries, said Mike Dwyer, the director of Global Policy Analysis at the USDA's Global Analysis/Foreign Agricultural Service division.

Dwyer listed eight factors that will drive markets through 2020, four for them on the demand side, including global economic growth and the rise of the middle class in developing countries, particularly in China and Asia.

The US dollar will likely extend a decline in value that started in 2002 through to at least 2020, according to USDA assumptions - a trend that will increase demand for commodities and put upward pressure on prices.

Demand for feedstock continues to grow, as well as that of corn, grain and vegetable oils, while trade volumes have grown sharply in the past decade, in part reflecting higher imports of farm products, he said.

Among supply-side factors, Dwyer said he expects policy errors by governments, such as export bans on wheat, will distort markets and increase world prices, while lowering prices and profits for local producers as higher energy prices drive up the cost of farm production and of farm products.

Meanwhile, the role of biotechnology will increase, improving yields, while increased land will also be brought into production, he said.

Most of the increased food production will come from higher yields, but strong prices will encourage at least some increase in planted acreage or new land being developed, which will mostly be in South America - particularly in Brazil - or the former Soviet Union, he said.