Agricultural Trade OutlookAugust 2013

Philip Abbott

Key Issues• Record Agricultural Exports, High commodity prices

– But Volumes traded are down (corn and soybeans)– Corn export collapse: Exports have assumed a

disproportionately large share of rationing the short 2012 crop– But Trade may not return when production recovers

• World production has responded to persistent high prices• Indirect corn exports held up better than direct exports• Advance sales for the upcoming crop year are strong

• Trade no longer a cornerstone of agricultural policy– Export promotion efforts, WTO/URAA outcome had contributed

to higher agricultural exports– Biofuels, Drought have supplanted trade as the mechanism for

higher demand, ag prices– Current polices ignore/violate WTO commitments

• High prices made some WTO commitments moot• Disputes (eg Brazil cotton)

USDA Forecasts Ag exports for 2012/13 @ $139.5 billion

• May 2013 Trade Outlook• Values up due largely to high prices, recent volume estimates down• Imports also at record, $111 billion in 2013

– Ag trade surplus $28.5 billion

U.S. agricultural trade

  Fiscal years        

2002 2006 2007 2008 2009 2010 2011 2012 2013Billion dollars

Agricultural exports 53.3 68.6 82.2 114.9 96.3 108.7 137.4 135.8 139.5

Agricultural imports 41.0 64.0 70.1 79.3 73.4 79.0 94.5 103.4 111.0

          Ag Trade balance 12.3 4.6 12.1 35.6 22.9 29.7 42.9 32.4 28.5

Ag Trade value - $ billions

Ag Trade value - $ billions

Corn exports overestimated; soybeans, wheat, feeds underestimated

Meat and dairy export values at record $30.1 billion, on upward trend

World Commodity Price Indices

High prices a big part of increased export value

Ag trade volume – million mt

Corn volume falling since 2008, soybeans since 2010

Meat volumes – pork and beef down slightly, dairy & poultry up

Weekly data on corn, soybeans

Corrections to comeOn corn and soybean trade, total export value

Projections from weekly data show WASDE adjustments lagged

WASDE forecast for corn overestimated, soybeans underestimated relative to both Commerce trade data and weekly export reports to FAS

August 2013Trade forecast likely to show lower value

2014 forecast $8 billion lower!!

Corn exports $1-2 billion lower in 2013 than the May trade forecastSoybeans $6 billion lower in 2014

2013May Trade Outlook & WASDE 2013 August WASDE 2014

July WASDE

2013 MayTF to 2014W Changes

2103Aug to

  Q P V Q P V ΔV Q P V Q P V V

    67.20   65.65 -1.55 59.01   -8.19 -6.64

Corn 1135 6.90 6.00 715 6.95 3.81 -2.19 1225 4.90 4.60 8% -29% -1.40 0.79

Soybeans 1350 14.30 22.10 1315 14.40 21.68 -0.42 1385 11.35 18.00 3% -21% -4.10 -3.68

Soy oil 2200 49.00 1.20 2150 47.00 1.12 -0.08 1300 46.00 0.67 -41% -6% -0.53 -0.46

Soy meal 9900 425.00 4.80 10900 455.00 5.66 0.86 9700 325.00 3.60 -2% -24% -1.20 -2.06

Wheat 1025 7.80 9.00 1007 7.77 8.81 -0.19 1100 7.00 8.67 7% -10% -0.33 -0.14

Rice 108 14.90 2.20 107 14.90 2.18 -0.02 96 15.00 1.97 -11% 1% -0.23 -0.21

Beef 2412 128.50 5.10 2363 124.50 4.84 -0.26 2300 131.00 4.96 -5% 2% -0.14 0.12

Pork 5028 59.00 5.00 5024 63.00 5.33 0.33 5255 60.00 5.31 5% 2% 0.31 -0.02

Poultry 8134 91.00 6.30 8332 101.50 7.20 0.90 8500 93.00 6.73 4% 2% 0.43 -0.47

Cotton 13.25 78.00 5.50 13 72.00 5.02 -0.48 10.6 80.00 4.51 -20% 3% -0.99 -0.51

Total     139.50 137.95 131.31  

Horticulture   32.00

Tropical   6.50

Feeds   7.60

Dairy     5.30

Will corn exports return?• Weekly sales from next marketing year at record for corn

– China has bought 3 mmt (29%), more than last years total corn imports• But competition from Latin America FSU is strong, and world

production has been increasing

Soybean advance export sales also very high, but they were also last year and

exports tapered to less than record levelsChina at 13mmt, 73% (> their 60% import share)

I ncreases since 2007/ 08 to 2013/14 forecastArgentina 23%Brazil 23%FSU 189%United States 7%World 21%

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Corn production

Argentina

Brazil

Former SovietUnion - 12

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World

World Area has increased since 2005!

1 hectare = 2.47 acres

Ag Trade Volumes in 2012 responded differently from 2008

• In spite of high prices, record volumes of corn and soybean exports were realized in the 2007-08 crop year– ?? Higher export demand elasticity>?

• Higher prices elicited greater production here and abroad; reallocation and expansion of land– Self-sufficiency and competition from Brazil, Argentina, former

Soviet Union– Lagged adjustment in exports evident in data

• 2012 Drought faced already weaker foreign demand, which also now seems more price elastic– Corn exports especially weak

WASDE puts strong emphasis on exports’ role in rationing corn and soybeans

• Quantities held up in 2007/08 in spite of high prices• But exports have fallen in years afterwards

Weekly exports and outstanding sales from 2012/13 crop year support low export forecast, as does Commerce trade data through June

2012/13 2013/14 2007/08 2012/13 2013/14 2007/08

Corn Soybeans

May October January July July May Final May October January July July May

Beginning stocks 851 988 989 989 729 937 1,304 Beginning stocks 210 169 169 169 125 610

Production 14,790 10,706 10,780 10,780 13,950 12,460 13,038 Production 3,250 2,860 3,015 3,015 3,420 2745

Feed 5,450 4,150 4,450 4,450 5,150 5,700 5,913 Crush 1,655 1,540 1,605 1,660 1,695 1790

FSI Dom Use - Oil 18,200 18,100 17,900 18,550 18,550 19700(including Ethanol) 6,425 5,850 5,867 6,050 6,350 4,790 4,387 - Meal 31,200 29,500 29,750 29,350 30,200 34,350

Ethanol 5,000 4,500 4,500 4,650 4,900 3,400 3,049 Biodiesel 4,900 4,800 5,500

Exports 1,900 1,150 950 700 1,250 1,975 2,437 Exports - Beans 1,505 1,265 1,345 1,330 1,450 1080

Oil 1,250 1,200 2,150 2,200 1,300 1425

Meal 8,400 7,500 8,700 10,500 10,200 8400

Ending stocks 1,881 619 602 729 1,959 947 1,624 Ending stocks 145 130 135 125 295 320

Farm price $ 4.60 $ 7.80 $ 7.90 $ 6.95 $ 4.80 $ 3.40 $ 4.20 Farm price $ 13.00 $ 15.25 $ 14.25 $ 14.40 $ 10.75 $ 7.00

Export share of corn rationing has been larger than initial WASDE forecastsRationing - Adjustments from May 2012 WASDE ForecastCorn 2012/13 2007/08

October January July FinalSupply -25% -25% 7%

Feed -24% -18% -18% 4%FSI -9% -9% -6% -8%Ethanol -10% -10% -7% -10%Exports -39% -50% -63% 23%Ending Stocks -67% -68% -61% 71%

Soybeans 2012/13 2007/08October January July Final

Supply -12% -8% -8% -3%

Crush -7% -3% 0% 1%Domestic Use -

Oil -1% -2% 2% -7%- Meal -5% -5% -6% -3%

Exports - Beans -16% -11% -12% 7%Oil -4% 72% 76% 104%

Meal -11% 4% 25% 10%Ending stocks -10% -7% -14% -36%

Indirect exports held up much better than direct exports

• Meat• Biofuels

– Ethanol– DDGs

• Milling/refining– HFCS– Gluten feed

• Indirect exports exceeded direct exports in 2012-13

Biofuels adjustments, increasing pork and poultry exports

IMF Forecasts Lower Global growth• IMF has once again downgraded growth projections

– Emerging economies not growing as fast (China, Brazil) – Euro area mired in recession (technically ending)

• Exceeding expectations with +0.3% quarter (2013 II)! • Huge differences across countries in EU – PIIGS still negative

– US has been "bright spot" - slow recovery underway• Risks

– Unwinding of loose monetary policies - credit tightens • China, emerging economies slow further • Capital leaves emerging economies as QE tapers

– Trade as a weak engine of growth – Euro area crisis resumes – Excessive fiscal austerity in US, EU

IMF World Economic Outlook Projections USDA

Projections WASDE

2011 2012 2013 2014 2013World Output 3.90 3.10 3.10 3.80

Advanced Economies 1.70 1.20 1.20 2.10

United States 1.80 2.20 1.70 2.70 2.50 -0.80Euro Area 1.50 –0.6 –0.6 0.90 -0.30 -0.30    Germany 3.10 0.90 0.30 1.30    France 2.00 0.00 –0.2 0.80    Italy 0.40 –2.4 –1.8 0.70    Spain 0.40 –1.4 –1.6 0.00Japan –0.6 1.90 2.00 1.20 1.00 1.00United Kingdom 1.00 0.30 0.90 1.50Emerging and Developing

6.20 4.90 5.00 5.40

Central and Eastern Europe

5.40 1.40 2.20 2.80

Russia 4.30 3.40 2.50 3.30

Developing Asia 7.80 6.50 6.90 7.00    China 9.30 7.80 7.80 7.70 7.70 0.10    India 6.30 3.20 5.60 6.30 5.80 0.20Latin America and the Caribbean

4.60 3.00 3.00 3.40

    Brazil 2.70 0.90 2.50 3.20 2.90 -0.40    Mexico 3.90 3.90 2.90 3.20 3.60 -0.70Middle East and North Africa

3.90 4.40 3.10 3.70

Sub-Saharan Africa 5.40 4.90 5.10 5.90 5.20 -0.10

Global Money Printing – Will it ever bring inflation?

• Japan - Abenomics• US QE3 – will tapering begin soon?• ECB – LTRO and OMT also inflationary, should weaken

Euro– Renewed confidence in Euro dominates– IMF concerned Euro crisis not fully resolved

• Currency wars --Brazil objected to QE3 on grounds its competitiveness hurt by depreciating dollar, appreciating Real

Bilateral exchange rates

Exchange rate trends

• Euro steady at $1.32 per €• Chinese Yuan appreciates very slowly• Japanese Yen depreciated 25% after

Abenomics began in December, 2012• Brazilian Real is now depreciating,

reflecting weakness in Brazil, emerging economies

Trade Policy Reform

“5 years of biofuels policy has undone what two decades of trade policy reform had accomplished.”

Trade Agreements• WTO Ministerial in Bali in December, 2012

– Lamy to step down as head of WTO– Little evident progress on agriculture

• Trans Pacific Partnership (TPP)• US-EU bilateral agreement talks launched

– Agriculture content uncertain– Technical issues (SPS, TBT) highlighted in

early discussions

WTO & Farm Bill• Crop insurance is amber box (but non-product specific)

– Or blue box (which US has not used in past)– Rules would allow a differently designed program to be “green box”– Limits on spending ( de minimis, now 5% of ag production value≈ $19

billion) may be approached this year, depending on what counts• Premium subsidies and “reinsurance” to private insurance firms

– Negotiations would reduce that substantially – if other countries have their way

– Virtually nothing on web shows concern with WTO in current farm bill negotiations

WTO & Farm Bill• Commitment to Brazil over cotton dispute

– Retaliatory sanctions (services, intellectual property -pharmaceuticals) authorized by WTO in March 2010

– June 2010 compromise: suspend sanctions, $147 million/year to Brazil, change cotton program & export guarantees in next farm bill

– June 2012 – threats to restore sanctions if not satisfied with new farm bill– Brazil not satisfied with either House or Senate earlier versions of bills, Congress

ignoring issue? House wants to end $147 million payment Senate provision like STAX proposed by Cotton Council

• Last week headlines:– USDA says it will stop cotton payments to Brazil (AP, 8/7/13)– Brazil won't rule out retaliation if U.S. cotton payments end

(Reuters 8/8/13)

– Payments affected by sequester budget cuts– Retaliation on Brazilian ag imports from US, pharmaceutical patents

Closing Thoughts• Supply may eventually catch up to demand,

lower prices follow (very likely this year!)• Will corn exports return with much lower corn prices?

– Exports have responded to prices with a lag, changes “irreversible in short run

– Trade volumes unlikely to immediately return with lower prices– Area & production increases abroad due to investments in

agriculture– USDA’s 31mmt (1225 mbu) forecast may be optimistic– Export demand will influence floor to corn price– Indirect exports held up

• Soybean exports inelastic, but Latin American competition persists

• WTO commitments could become an issue again – Can we ignore them?