Conventional wisdom in agricultural circles says that what goes up – particularly commodity prices and farm incomes – must eventually come down. However, this has not been the case for U.S. agricultural exports this year, according to mid-year analysis by American Farm Bureau Federation economists.

Trade in U.S. agricultural products is strong in 2007, and it appears likely that strength will continue as the year progresses, according to AFBF.

Data for sales through the first half of 2007 and contract indications for the rest of the year indicate that the U.S. is setting yet another agricultural export record in 2007 – for the fifth year in a row and for 32 successive quarters on a year over year basis, according to the AFBF report. Given the pace of business to date, 2007 exports are likely to top $80 billion compared to $70.9 billion in 2006 and only $53 billion as recently as 2002.

Favorable market supply conditions and demand fundamentals, both domestically and abroad, are keys to understanding this positive trade situation.

“The world is currently experiencing strong economic growth on an almost global basis, short-term weather developments and a weak dollar which all contribute to this condition,” Pat O’Brien, AFBF economist, said.

U.S. imports also are strong, which is somewhat surprising considering the declining value of the dollar against foreign currencies, according to AFBF. The decline of the dollar that has contributed to cheaper U.S. export prices also is making imports more expensive, thus slowing or reversing the growth in U.S. agricultural imports.

However, U.S. agricultural import data shows the reverse – agricultural imports have risen to set successive record highs as the dollar has fallen to record lows. Demand for these imports, particularly semi-processed and processed products like French wine and Swiss chocolate, seems to be strong enough to overshadow the effects of the exchange rate, according to AFBF economists.

The AFBF analysis also looks to the future and suggests if the dollar continues to be cheap, then the U.S. can expect continued strong exports. And a continued weak dollar may mean import growth may become somewhat restrained.

If the dollar strengthens, the U.S. likely would lose its momentum in export growth, while agricultural imports would become cheaper.

“Underlying all of this is the need for American farmers to realize that for at least the export market, it is the cost of American products in pounds, yens, and pesos – rather than U.S. dollars – that make or break U.S. sales,” O’Brien said.

Source: American Farm Bureau Federation