USDA economist says exports key to growth
CHAMPAIGN — Foreign markets will drive long-term demand growth for U.S. agricultural products, the chief economist for the U.S. Department of Agriculture said.
But Joe Glauber said other countries are also growing more crops, and U.S. producers will have to prove they can compete with counterparts in Brazil, Ukraine and Russia.
"Brazil was the No. 1 exporter of corn last year," Glauber told about 200 people at a Farmland Markets Conference at the Hilton Garden Inn in Champaign. Glauber called that statistic both "staggering" and "unfathomable."
Prospects for U.S. farmers also will turn on whether the global economy experiences a downturn, he said. But the United States is expected to see continued crop demand from China.
"Projections suggest we won't see double-digit growth (from China), but still strong growth," Glauber said.
Giving some historical perspective, Glauber said that in the half-century following World War II, crop prices tended to decline as a result of productivity gains.
But since the year 2000, there's been an upward trend, with prices moving up dramatically since 2005.
U.S. agricultural exports — which total about $135 billion — have more than doubled over the last 10 years, partly due to higher prices but also due to greater volumes, Glauber said.
Europe was once the top agricultural export destination for the United States, he said. Later, Japan assumed that role, and in 2012, China became the leading destination, outpacing Canada, Mexico, Japan and the European Union.
Wednesday's conference was sponsored by the recently established TIAA-CREF Center for Farmland Research at the University of Illinois.
The center's director, Bruce Sherrick, said farmland has "bubbled up on the radar" of many types of investors the past few years.
He provided data showing the average price of Illinois farmland has increased from about $1,500 an acre in 1990 to $2,500 an acre in 2004 — before running up to more than $6,500 an acre in 2012.
Comparing it with other investments, Sherrick called farmland a relatively "stable" asset with annual average returns that exceed those of many other assets. Plus, ownership of farmland doesn't turn over often, he said.
Sherrick said the biggest risks to farmland value include:
— A sudden change in monetary policy.
— Changes in federal crop insurance provisions.
— Major changes in renewable fuel standards.
— And a global slowdown in income growth.
But he said the first three seem "unlikely" and he is uncertain about prospects for the fourth.
Scott Irwin, a UI professor of agricultural and consumer economics, said it appears the U.S. Environmental Protection Agency and Obama administration are about to make "a dramatic U-turn" in biofuels policy.
The agency has signaled that it may not force the use of advanced biofuels in order to meet Renewable Fuel Standard targets, he said.
"Everyone associated with biofuels and green markets will be losers to some degree," Irwin said.
The biggest losers will be Brazilian sugarcane producers who could suddenly see $1 billion of their export market evaporate, he said.
Biodiesel and soybean producers also could be affected, as a result of a drastic reduction in the volume of biomass-based diesel that would be required, he said.
Corn-based ethanol could be affected to some extent, but its use would be preserved "at a pretty high amount," he said.
"It's taken imaginative and creative logic to justify the new rules," Irwin said. The agency would effectively be saying, if there's inadequate domestic supply of advanced biofuels, "you can waive the blend wall."
Irwin predicted that biofuel groups will sue the EPA over the matter, and the issue will ultimately be decided by a federal judge.
"There's a long way to go before the whole story is known," he said.