Tuesday, September 06, 2011
Cornbelt Farm Exports Keep Prices High And Trade Balance Positive
In the past week the USDA forecast agricultural exports for the fiscal year beginning October 1 at $137 billion, the same as the fiscal year which is just about to conclude. But when you look at the detailed numbers, the $137 billion is more of a coincidence than anything else. The exported commodities and their values are quite different from the 2011 fiscal year. With agriculture, and particularly livestock producers, getting quite a bit of their profitability from overseas demand, those details are important to every farmer’s bottom line.
For the record agriculture still is one of the few industries in which there is a positive balance of trade, with more exports than imports. For the 2012 fiscal year, outbound product values are $137 billion and inbound product values are $105 billion. In the USDA’s August Outlook for Agricultural Trade the main engines driving the positive trade balance include corn, livestock products, and horticultural products. Wheat exports are running into Black Sea competition, and general oilseed production has declined to the point there is insufficient quantities to remain a major export force.
To put the $137 billion in perspective, exports have grown $55 billion since 2007, and the 2011 export value was a nearly $30 billion jump from the prior year. The balance of trade was a slim $12 billion in 2007, but is ending fiscal 2011 with a positive balance of more than $42 billion. The next fiscal year will see a $10 billion jump in the value of imports, which will shave the difference to $32 billion.
Export values are a function of the value of the dollar, and agriculture knows that a lower exchange rate has caused foreign buyers to be interested in our commodities which are lesser priced, but when the US consumer wants coffee, cocoa and Danish ham, the price is much higher which increases the value of imported commodities. USDA’s economists say world economic growth will expand to 3.5% in the coming year, compared to 2.9% this year, with inflation dropping and the dollar falling. That means there will not only be more demand from price differential, but also from demand growth. And global consumers who have more money to spend will want higher value foods, such as beef and pork. USDA says, “Despite slow growth, the outlook for agricultural trade is promising. The relatively stable Middle East and expectations of slower world growth have brought sharp reductions in energy prices. A weak dollar and low interest rates provide plentiful credit for U.S. exports in 2011 and 2012.”
Cornbelt farmers will benefit from a $39 billion demand for grain and feed exports, with more business for corn and less demand for wheat. While exported corn volume will be down 40 million bushel (1 mil. tons) higher prices for corn will increase the export value. Feed, which includes DDGS, will be up $700 million on tight supplies and higher prices. Wheat exports will be down $1.3 billion in value due to lower volume, and more competition from Russian and the Ukraine. In the current year, corn exports were down because of lower volume exported and lesser demand for feed grains.
Oilseed exports will be down $1 billion in the coming year because of lower volumes of beans, meal, and oil. USDA says that is a function of the South American crop, “Soybean export value is expected down $400 million to $20.2 billion as volume is reduced based on the smaller crop and greater competition from South American exports. Exports of soybean meal and oil plunge due to reduced crush in the United States and ample supplies in South America from a projected record crush.” But there will be a greater domestic demand for soybean oil to convert to biodiesel, and that will reduce soybean oil exports. Remember last year soy diesel plants were idle because of the loss of the tax credit.
Livestock exports in the next fiscal year are expected to increase by $200 million to $27.1 billion with more outbound pork, but less outbound beef and dairy. Pork exports should surpass $5 billion on higher volume and higher value, thanks to the demand from China, Korea, and Japan. Beef exports will drop slightly to $4.3 billion on tighter supplies, despite the strong demand willing to pay higher prices. Compared to the $5.2 billion in pork exports in 2012, that number was only $3.9 billion in 2010; and the $4.3 billion for beef next year was only $3.2 billion in 2010.
The greatest demand for agricultural exports comes from Canada and China, with both expected to purchase $19 billion in commodities in 2012. Soybeans and cotton are China’s main purchases, with Canada buying US horticultural products. Mexico is next with higher imports of pork and corn.
Summary:
US agricultural exports have benefited from the lower value of the dollar and from global economic growth to help push commodity prices higher. Despite higher commodity prices, foreign buyers find them a bargain and have remained in the US market at a high level. While US corn and pork are filling shiploads, soybeans and beef are also in demand. While export values will remain at $137 billion for a second year, that level is $55 billion more than what was exported in 2007 and $32 billion more than US agricultural imports.
Posted by Stu Ellis on 09/06 at 12:00 AM | Permalink