Agricultural Prices to Stay High, U.S. Official Says (Update1)

By William Bi
Sept. 5 (Bloomberg) -- Global agricultural prices will probably remain higher than in the previous decade as strong demand from China and other developing nations outstrips gains in production, a U.S. agriculture official said.
A growing middle class in emerging markets, rising energy costs and biofuel production will keep prices above ``historic levels'' even after recent declines, Mark Petry, agricultural attaché at the U.S. embassy in China, said in a speech prepared for delivery today.
Soybeans, corn, rice and wheat have slumped after climbing to records this year as declining crude oil prices and higher farm production spurred speculation that the rally was over.
An expanding middle class ``should keep demand firm,'' Petry said in the remarks for a conference in Chengdu. The number of middle class households globally, or those with a combined annual income exceeding $20,000 after adjusting for real purchasing power, will double by 2020 from 2004, Petry said, citing data from Global Insight. China and India will lead the advance, he said.
China's spending power is fueling imports of soybeans, poultry and other products, while its own production is failing to keep pace because of water shortages, limited use of genetically modified crops and a shift to cash crops from bulk commodities, Petry said.
China Growth
``China's soybean consumption should grow at least 8 percent a year,'' Petry said. While above-normal imports have created a glut, that will be drawn down and normal buying will resume later this year, he said.
Soybean imports in the first seven months rose 23 percent from year ago to 20.7 million tons, according to customs data. That jump helped create oversupply that pushed China's soybean oil prices to the lowest this year on Aug. 13, forcing the country's biggest cooking oil bottlers, including Wilmar International Ltd. and Cofco Ltd., to cut prices.
In the 2008-09 marketing year beginning in October, ending stockpiles of U.S. corn will be tighter than last year, while the gain in soybean output will help compensate for low ending stocks from the previous year, Petry said.
''I'd be surprised if soybeans fall'' below the level of about $10-$11 a bushel, because of higher costs of production, especially in South America, Petry said. Further declines in returns may prompt farmers to scale back planting, he said.
Soybeans traded at $12.1350 a bushel in Chicago at 1 p.m. Singapore time today.
Global wheat production will rebound this year, he said. World rice supplies are adequate to meet demand and ending stocks are expected to increase, he said.