Companies dependant on oil for manufacturing may see a "modest" drop in prices, according to the forecast. They will rise again after 2013.
"However, adjustments in retail prices due to higher energy and agricultural commodity prices lead to food price increases somewhat larger than general inflation in 2008 and 2009. Relatively large price increases are expected in 2008 for fats and oils and for cereals and bakery products, reflecting higher prices for vegetable oils and wheat," the report said.
Farm income will initially decline after this year, but remain "remain historically strong throughout the projection period, and reach record levels beyond 2011."
This is being partially fed by an increase in demand for corn-based ethanol.
As for agricultural trade, USDA says world consumption of many grain, oilseed, and meat commodities has exceeded world production in the past several years, reducing global stocks.
Projections cover agriculture crop and livestock commodities, as well as agricultural trade and details on farm income and food prices.
USDA provides these projections every year for use in preparing federal budget estimates.
The forecast also predicts world economic growth is expected to increase at a 3.5 percent average annual rate between 2008 and 2017, with strong economic growth in developing countries.
Corn slump
US exports of corn are expected to show little increase through 2012/13 because of an increasing use of corn for ethanol production. USDA says this will lead to an increase in corn production and exports for Argentina, Ukraine, Republic of South Africa, and Brazil.
"China is also assumed to increase corn production, which changes its net corn trade by slowing the decline in its exports and the increase in its imports. Nonetheless, China is projected to become a net importer of corn in the longer run, reflecting declining stocks of grain and increasing demand for feed for its growing livestock sector," the department predicts.
Crops
This year will see some shift in the cropping mix towards wheat and soybeans and away from corn, due to short-term global supply reductions for those crops. This will then return to growing corn in the long-term.
The report says soybean plantings will decline to less than 70 million acres after 2008, reflecting more favorable returns to corn production.
Wheat plantings will rise sharply in 2008 in response to high prices resulting from tight global supplies. Wheat acreage falls back to about 56 million acres in the longer run due to competition from other crops, says USDA.
For sugar, USDA predicts returns in Mexico from exporting sugar to the United States will be higher than either delivering sugar to domestic food manufacturers for use in sugar-containing-product exports or exporting sugar to other countries at world prices.
Between 2009 and 2018 US sugar imports from Mexico are projected to average 1.568 million tons.
