ARLINGTON, Va. — “Growing Locally, Selling Globally” was a fitting theme for the 95th annual Agricultural Outlook Forum Feb. 21-22 with current trade disputes overshadowing an expanding market for U.S.-produced commodities.
U.S. Department of Agriculture’s chief economist Robert Johansson opened the forum with a focus on agricultural economic and foreign trade.
Johansson said despite difficult financial times for many producers, the American farmer is producing and selling an enormous amount of food that feeds people not just in the United States, but globally.
In 2018, the U.S. produced the most corn and soybeans in the world, more than one-third of total production, and made up more than a third of total corn and soybean exports.
“The U.S. is the world’s number one beef producer and largest beef exporter at over $7 billion in annual sales. For other important commodities, such as pork, wheat and cotton, the American farmer is anywhere from the third largest producer to the fifth largest; however, we export relatively more of what we produce — we export more cotton and corn than anyone in the world, we export the second most wheat and soybeans,” Johansson said.
“Increasing productivity at home and growing export markets is what we expect over the next 10 years. We expect more people to have improved access to food in the coming 10 years as real food prices fall and global growth continues to boost purchasing power.”
The share of people who are food insecure globally is expected to fall from more than 20 percent of the world’s population in 2018 to about 10 percent in 2028, despite a much larger global population.
“These numbers mean an expanding market for U.S. producers and more opportunities to grow and to sell globally,” Johansson said.
Here are some of the highlights of Johansson’s remarks:
On Prices, Supplies
Our general expectation is for continued declines in real agricultural commodity prices over the next 10 years. Falling commodity prices are the result of continued production growth, which continues to outpace global demand. The remarkable increases in food production have resulted in large part from productivity growth, and have resulted in falling prices for agricultural commodities over the past half century.
Since 1960, soybean production has increased nearly 1,200 percent, while real soybean prices have fallen by 52 percent. Corn production has grown by more than 400 percent, and prices have fallen by nearly 60 percent.
In addition to global or domestic stocks relative to use, prices will be affected by the impacts of retaliatory trade tariffs on commodities. For example, soybean prices deteriorated by 20 percent following escalation of the trade dispute and improvement in growing conditions over the summer. The 25 percent retaliatory tariff effectively blocked U.S. soybean sales to the Chinese market, forcing U.S. soybeans to sell at steep discounts in other markets relative to our main competitor Brazil. That discount reached over $90 per metric ton in October.
While U.S. soybean prices have been slightly buoyed amid some signs of progress in negotiations, the export outlook for this year’s crop remains challenging. Currently, the U.S. has exported 24 million metric tons of soybeans, down 13.5 million metric tons from this time last year.
Under the trade dispute, exports to China alone have plummeted by 22 million metric tons, or over 90 percent. Sales to the European Union, Egypt, Argentina, and many others are up this year due to the discount that had been available on U.S. soybeans, however, sales to other countries have not been enough to make up for the lost exports to China.
With the narrowing price gap and the ongoing South American harvest making export markets outside of China more competitive, we expect little export recovery for the remainder of the marketing year.
Corn is expected to be the primary beneficiary of the decline in soybean acres, rising 2.9 million acres to 92 million, the largest since the 2016 planting season, when the price ratio was more favorable to corn.
On Trade Forecast
Overall, U.S. agricultural exports are currently forecast at $141.5 billion in fiscal 2019, down $1.9 billion from 2018. The share of total U.S. agricultural exports to China in value terms is projected to be 6 percent, down sharply, with China falling from the top market in 2017 to fifth place.
Several of our international commodity markets have been severely disrupted by the ongoing trade tariff situation, even though sales to other countries, including Canada, Mexico, and the EU, are projected to increase in 2019 and offset some of the reduction in exports to China. Over the longer term, USDA projects U.S. agricultural exports to continue to grow over the next 10 years, despite the assumed continuation of retaliatory tariffs over the forecast period.
Significant growth is forecast for meat and dairy exports, with pork exports approaching 7 billion pounds and skim solids exports exceeding 50 billion pounds by 2028. International demand for livestock products continues to be fueled by rising per capita meat consumption in emerging markets. Growth in skim-solid dairy exports is significantly higher compared to fat-basis, reflecting strong domestic demand for high fat products such as butter, and growing global demand for lower fat products such as skim milk powder and whey.
More moderate growth is forecast for U.S. crop exports. In the case of soybeans, the continuation of retaliatory tariffs leads to lower exports for the duration of the projection. Nevertheless, soybean exports are still projected to grow, rising to 61 million metric tons in 2028.
Rising meat consumption, which increases feed demand, helps support growth in U.S. soybean and corn exports. However U.S. market share for corn and soybeans is projected to decline due to growing competition from South America as its production increases both from yields and area expansion.
Over the next 10 years, the U.S. share of global corn and soybean exports is expected to fall to 36 and 31 percent, respectively, or roughly 6 percentage points lower than 2017-2018 shares. Similarly, U.S. wheat exports are relatively flat over the projection period due to increased competition. U.S. market share falls in the near term as India’s production recovers and Brazil and Africa increase production in response to relatively more favorable cotton prices, but remains stable through the out years. U.S. competitiveness in the global marketplace will depend in part on market access into key markets.
In 2017, U.S. agricultural exports to the top five markets totaled $83 billion. For markets such as Canada and Mexico, where the U.S. has duty-free access, U.S. exports make up a large share of those countries’ imports. However, the U.S. share is much smaller for China, Japan, and the EU, where the U.S. doesn’t have preferential access. Better access to customers in emerging markets in Southeast Asia, Latin America, Africa, and the Middle East remains important to expanding U.S. exports.
We’ve seen a proliferation of trade agreements among our top trading partners that exclude the U.S. Based on preliminary research we would expect those trade agreements to result in other countries’ exports crowding out U.S. products without parallel or similar bilateral agreements with the United States.
Our own agreements, such as the U.S.-Mexico-Canada Agreement and new negotiations notified with Japan, the EU, and the UK, should help preserve and expand our access. While implementation will take some time to complete, USMCA will modernize and strengthen food and agricultural trade in North America by preserving or expanding access to the top two U.S. export markets, as well as stronger rules that address new trade issues.