Most noticeably, the USDA predicts that the rapid expansion in biofuels will change the price relationships among various agricultural commodities and increase demand for grain (especially corn).
The expansion of biodiesel production globally will also likely result in rising prices for vegetable oils in comparison to prices for oilseeds and protein meals as more of the crush value of oilseeds derives from the oil.
As a consequence, prices of protein feeds (such as soybean meal) will rise relatively less than prices of feedstuffs used primarily as a source of energy (such as corn).
The USDA report covers agricultural commodities, agricultural trade, and aggregate indicators of the sector, such as farm income and food prices.
It also identifies major forces and uncertainties affecting future agricultural markets; prospects for global long-term economic growth, consumption, and trade; and future price trends, trade flows, and US exports of major farm commodities.
For example, the report predicts a slow expansion of domestic food use for rice. Growth is only slightly faster than population growth, well below the rates of growth in the 1980s and 1990s when per capita use rose rapidly.
The USDA's sugar projections assume the elimination of Mexico's soft drink and distribution taxes, which would result in higher levels of use of high fructose corn syrup by Mexico's beverage industry and higher exports of sugar from Mexico to the United States.
Production of all meats is likely to slow or decline in the first half of the projections, reflecting higher feed costs and lower producer returns as more corn is used in the production of ethanol.
After those productions adjustments, strong domestic demand and some strengthening in meat exports will result in higher prices and higher returns, providing economic incentives for expansion in the sector. How the sector adjusts to the increased availability of distillers grains will also be important, said the report.
Overall, increases in global demand for food and agricultural products will provide the foundation for gains in agricultural trade and US exports. The United States will remain competitive in global agricultural markets, although trade competition will continue to be strong, said the USDA.
However, expanding production in a number of countries, including Brazil, Argentina, Canada, Ukraine, and Russia, will provide competition to US. exports for some agricultural commodities. A strengthening US dollar assumed in the projections also is a constraining factor for US agricultural competitiveness and export growth in the longer run.
World economic growth is projected to increase at a 3.4 percent average annual rate between 2007 and 2016, after averaging 2.9 percent annually in 2001-06.
US gross domestic product (GDP) slows over the next several years from 3.4 percent in 2006 toward a sustainable rate of about 3 percent over the longer term.