U.S. farmers can expect another strong year

By Charles Abbott and Christopher Doering

WASHINGTON (Reuters) - America's booming farm sector is headed for another year of strong growth, with a weak dollar aiding exports and strong demand for oil fueling the corn-based ethanol boom, top U.S. agriculture officials projected on Thursday.

Tempering the outlook is rising competition from South American farmers and a rebound in world wheat production in Australia and Ukraine that could provide competition for U.S. growers. Wheat prices, however, are expected to remain at record levels.

U.S. farm exports are forecast to surge to a record $101 billion in the fiscal year ending on September 30 from the forecast of $91 billion made three months ago.

"The continued growth in our exports is nothing short of spectacular," Agriculture Secretary Ed Schafer told the opening session of the USDA's annual outlook conference.

Plantings of the eight major U.S. crops -- everything from corn and rice to wheat and cotton -- is projected to expand by 6.8 million acres to 252.3 million acres.

"There can be little debate that 2007 was one of the most remarkable years agriculture has ever seen," said Joseph Glauber, USDA chief economist. "As we look forward to 2008, the stage seems set for another year of prosperity and growth."

Using the latest USDA data, it can be projected that the U.S. wheat harvest could rise to 2.3 billion bushels from 2.1 billion bushels last year, while corn production could ease to 12.8 billion bushels from 13.1 billion bushels last year.

Despite rising criticism that ethanol drives up food prices, USDA officials expect heady times to continue for the alternative fuel, keeping corn prices high in the process.

Food prices are forecast to rise by 3.5 percent this year, following a 4 percent increase in 2007. Retail food prices are expected to rise more rapidly through 2010 than the overall U.S. inflation rate. Usually, food price inflation is less than or equal to the U.S. inflation rate.

"There's going to be real food inflation in this country," said C. Larry Pope, president and chief executive of the beef processor Smithfield Foods Inc.

Ethanol corn use is projected to increase 28 percent and account for 31 percent of corn output, a crop that is traditionally used as a feedstock for cattle, hogs and poultry.

Ethanol production capacity in the rapidly expanding sector is seen rising to rise to 13.4 billion gallons annually over the next two years from about 7.3 billion gallons now, according to the USDA.

Responding to criticism that ethanol distorts world markets, the head of the Renewable Fuels Association said that while corn will remain the foundation in making ethanol, new technologies were on the way.

"We realize there are limitations from what we can produce from grains," said Bob Dinneen, adding that makers of biofuel plan to expand output from nonfood sources, so-called cellulosic materials such as switchgrass and corn stalks and husks.

The USDA's forecasts are based on normal weather patterns and continued strong demand worldwide.