Record Exports and Imports Forecast For U.S. Agriculture

By Jane Fyksen, Crops Editor
Thursday, June 5, 2008 9:29 AM CDT

U.S. ag exports are expected to hit a record $108.5 billion for fiscal year 2008, according to USDA’s updated quarterly forecast released last week. USDA’s upward revision is a $7.5 billion increase from its February forecast and $26.5 billion above final 2007 exports. Grains and livestock products account for two-thirds of the export gains.

"America's increased export volume in bulk commodities like corn, other animal feeds and soybeans make agriculture the bright spot in the overall balance of trade," said U.S. Ag Secretary Ed Schafer. "U.S. producers are on track to export a record 63 million tons of corn, and set new export volume and value records for pork.”

“Export volumes and values are also up for many horticultural products with sales growth to Canada and the European Union being exceptionally strong," he added.

Asia continues to be an important growth market for U.S. commodities. U.S. ag exports to China are forecast to reach a record $10.5 billion, up almost $3.4 billion from 2007 levels. Canada and Mexico remain the United States' top two markets, however, with exports forecast to reach $30.5 billion in 2008 - some $5 billion above 2007.

"Trade agreements have a significant impact on our ability to sell America's agricultural products in world markets," said Schafer. "Canada and Mexico, our two North American Free Trade Agreement (NAFTA) partners, currently buy 28 percent of the value of America's agricultural exports - up from 20 percent purchased 15 years ago when trade began under NAFTA.”

Taking the opportunity to press Congress, Schafer said “unfortunately, Congress has not been acting in the best interest of the American farmer…by stalling approval of the signed trade agreement with Colombia. Yet along with approving trade with Korea and Panama, Congress could provide three extremely important markets for expanding the trend of increased American export sales for years to come."

While agricultural imports in two-way trade with the United States will also increase - to a record $78.5 billion forecast by USDA - the $108.5 billion in export sales by U.S. agriculture will net a positive ag trade surplus of $30 billion for the United States.

Looking closer at last week’s USDA projections, higher unit values were seen for wheat, feed grains, and rice, plus a two-million ton increase for corn and other feeds raise grain and feeds $2.6 billion. Animal products are raised $2.5 billion, with nearly half the increase due to dairy products as unit values remain high and volumes increase. Oilseeds and products rise about $1.8 billion. Slower-than-expected South American exports have extended the season for U.S. soybean shipments longer than expected. Horticultural products account for $800 million of the increase aided by ample supplies, strong demand and a weak dollar.

Fiscal 2008 agricultural imports are, as noted, forecast at a record $78.5 billion, up $2 billion from February and $8.5 billion above 2007. Oilseeds, grains and products account for almost half of the year-over-year increase, boosted by higher unit values and volumes. Grain and feed values are forecast up $700 million from February.

Horticultural product imports are forecast to fall slightly from February, as a result of lower imports of fresh fruits and vegetables. Nevertheless, horticultural products are still $2.4 billion above 2007. Sugar and tropical products, including coffee, cocoa, and rubber, are forecast up $500 million from February, with coffee accounting for most of the increase due to higher unit values.

Compared to the May export forecast for ag products of $108.5 billion, just five years ago, this country’s ag exports were a mere $56 billion. Ag imports in 2003 were $47.5 billion, for a trade balance for agriculture back then of $10.3 billion. The projected trade balance for U.S. agriculture for FY 2008 is $30 billion n up from $11.9 billion in FY 2007 (when exports were $81.9 billion and imports $70 billion).

According to USDA, world growth is slowing as energy prices continue to rise, and the impact of the home mortgage crisis in the U.S. continues to spill over into foreign financial institutions. As the dollar weakens further, the world economy is more favorable to growth in U.S. exports, and farm exports in particular, than expected earlier this year.

U.S. gross domestic product grew 2.2 percent in 2007 with growth between 1.2 and 1.6 percent expected in 2008, down from prior forecasts. Slowdowns in North America, Europe, and Japan will keep world economic growth between 2.8 and 3.1 percent in 2008, down modestly from 2007 and a bit lower than the prior forecast in February.

Growth in Asia, particularly China, and the transition economies is expected to be below 2007, in part due to higher raw material prices and slower growth in Europe and North America.

Crude oil prices in 2008 are expected to be up over 40 percent from 2007, and gasoline, diesel, and heating oil prices are expected to rise 20, 26, and 22 percent, respectively. Fertilizer prices were up 65 percent in April compared with April 2007, partly offsetting the impact of higher commodity prices on farm income.

The macroeconomic picture has deteriorated from earlier projections as growth in 2008 in the U.S., Japan, and Asia is slower than previously expected. Strong, but slower, growth in China should mitigate the size of the slowdown in non-Japan East Asia, offsetting the effects of weaker U.S. growth, report USDA analysts.

U.S. growth will slow in 2008 due to a sharp decline in housing construction, financial market disturbances, and very high energy prices. The U.S. banking system has provided additional capital so farm operators should continue to get commercial bank loans. Rising farm income and nonfarm exports will be growth areas in 2008.

China’s GDP is expected to grow 9 percent in 2008, bringing growth in the rest of East Asia of 4 to 5 percent.

The dollar exchange rate is an important determinant of U.S. ag trade. Relative to 2007, the dollar, adjusted for relative inflation rates, is expected to depreciate 3 percent against the euro, 10 to 13 percent against the yuan, and 6 percent against the Brazilian real, 2 percent against the Mexican peso, and 4 percent against the Argentinean peso in 2008. The dollar is forecast to be up 3 percent versus the yen and unchanged against the Canadian dollar in 2008. The dollar will be weaker overall, partly offsetting the impact of slowing world growth on U.S. exports.

Compared with the prior forecast, the economic environment is now perceived to be slightly less positive to U.S. farm exports as the rest of the world’s growth weakens modestly from prior expectation and the U.S. dollar is weaker in most major markets.

The oil market appears to have had only modest economic effects on most major U.S. trading partners, with Canada (as a major energy exporter) better off than expected given the large amount of trade with the U.S. But, as noted, there’s increased probability of further slowing in the world economy, due to recent financial market volatility and continued high energy and input prices.

A one-million ton upward revision increases corn shipments to a record 63 million tons for FY 2008. Higher volume and unit values increase corn export value to a record $12.9 billion. Competition from China and Argentina remains largely absent. Strong demand and premiums for Brazilian corn in the European Union have made U.S. corn more attractive in many markets, reports government trade-watchers. The slight increase in corn unit value reflects anticipation of a tighter U.S. market, which is due to a potentially smaller domestic corn crop and a draw down in stocks.

Exports of livestock, poultry and dairy products are forecast at $20.5 billion in fiscal 2008, up $2.5 billion from USDA’s February forecast. The improved outlook for dairy products to a record $3.7 billion accounts for nearly half this adjustment, while pork and broilers account for much of the rest.

Dairy prices remain higher and demand is stronger than expected. Drought in Australia and New Zealand has persisted, keeping global supplies tight and unit values from falling as much as expected from record highs in 2007. U.S. nonfat dry milk export volume and unit value have increased, and this product should account for about 40 percent of U.S. dairy exports this year with Mexico as the largest foreign market. Cheese, whey, and butter fat collectively account for another quarter of U.S. sales with strong demand from many countries.

Pork sets new export volume and value records. Pork exports are raised about $475 million from the February forecast on a 200,000-ton increase, largely due to increased sales to China. Increased sales are supported by catering business for the Olympics, rising incomes, and reduced domestic supplies resulting from disease outbreaks and weather.

U.S. exports to China are forecast to reach a record $10.5 billion, up $2.1 billion from the previous forecast and almost $3.4 billion above 2007 levels. Much of the improved outlook is due to an increase in expected sales of soybeans. High-value products such as pork, dairy products, and soy oil are also growing. China continues to be the world’s largest and fastest growing soybean importer, accounting for nearly half of U.S. soybean shipments. China’s economy is expected to be among the fastest growing in the world in 2008.

In the first half of fiscal year 2008, U.S. ag imports are up nearly 12 percent in value and more than 5 percent in volume (metric tons only). This indicates that import price inflation is about 6 percent. Despite the sluggish U.S. economy and the continued weakness of the dollar, import volume is expected to remain around 5 percent since food demand is relatively inelastic in the short run.

Imports of livestock products are expected to be $300 million higher than the February forecast and $600 million more than in 2007. The upward change in the forecast is attributed to higher than expected prices for dairy products other than cheese. Like livestock and meats, import prices of dairy products saw double-digit increases, but unlike red meats’ lower volume thus far, import volume of dairy products expanded by 3 percent year-to-date. The outlook for livestock and meats remains at $8.9 billion; a $200-million gain in cattle shipments is offset by a $200-million reduction in beef imports. The gain for cattle is attributed to increased volume and higher average price per head. Beef import volume is reduced due to high U.S. cow slaughter and a weak U.S. dollar which raises the prices for imported beef.

Over the past 4 quarters (since fiscal 2007’s third quarter), U.S. agricultural imports have grown at an average 11 percent. Imports from NAFTA are up 13 percent in that period, with shipments from Canada climbing twice as fast as Mexico’s. But these import growth rates were exceeded by Central America (14 percent) on the heels of the U.S. free trade agreement with the region, by East Asia (20 percent) led by China, by South Asia (20 percent) led by India, and Southeast Asia (21 percent) as Indonesia and Thailand exports surged.

Among the major exporting countries to the United States, China and India have expanded shipments the fastest at 26 and 21 percent, respectively. Since 2003, import growth rates from Brazil, Indonesia, Thailand, and Mexico follow China’s double-digit pace, ranging from 14 to 19 percent. Due to distance, imports of fresh produce are largely from Latin America, while processed produce are increasingly shipped from Asia.

Canada and Mexico accounted for 25 percent of U.S. ag imports in 1990, but that share has grown to 35 percent by 2007. The European Union’s share has remained steady around 21 percent, varying from 20 to 23 percent. Due largely to China, East Asia’s share expanded to 5.4 percent in 2007 from 3.8 percent in 1998.

Commodity and food prices are likely to be more stable over the spring and summer months as newly harvested crops supply the market, especially for fresh fruits and vegetables. Thus, a $78.5 billion total import bill is forecast for 2008, $2 billion more than February’s forecast, and $8.5 billion higher than in 2007. Half this increase is due to grains, oilseeds, and products.

Primary commodity prices, as measured by world food price inflation, have been on an upward trend since 2001, but have accelerated starting in 2007. The global food price index of the International Monetary Fund in early 2008 has doubled from 2001 levels. The U.S. import price index for foods, feeds, and beverages in early 2008 has risen 50 percent from 2003.

With respect to U.S. farm commodities, prices received by farmers are also up by almost 50 percent since 2002.

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