Agricultural Trade OutlookAugust 2011

Philip Abbott

USDA Ag Trade Forecast• as of May, 2011 (new trade forecast 8/26)• Exports -- $ 137 billion• Imports – $ 93 billion (also a record)• Ag Trade Balance -- $ 44 billion

2002 2005 2006 2007 2008 2009 2010 2011F

Agricultural exports 53.3 62.5 68.6 82.2 114.9 96.3 108.7 137.0

Agricultural imports 41.0 57.7 64.0 70.1 79.3 73.4 79.0 93.0

          Ag Trade balance 12.3 4.8 4.6 12.1 35.6 22.9 29.7 44.0

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Ag Exports2005 2010 %Change

$ billions 05-10Animals Live 0.50 0.56 13% 28%Beef & Veal 0.93 3.54 280% 46%Pork 2.28 4.08 79% 25%Poultry & Prods 3.14 4.81 53% 14%Dairy Prods 1.69 3.78 125% 36%Grains & Feeds 16.36 29.25 79% 51%Wheat, Unmilled 4.36 6.76 55% 161%Corn 4.79 9.81 105% 46%Fruits & Prep 3.47 5.26 52% 16%Nuts & Prep 2.99 4.80 60% 18%Vegetables & Prep 3.57 5.38 51% 9%Oilseeds & Prods 10.23 27.22 166% 17%Soybeans 6.27 18.56 196% 26%Tobacco, Unmfg 0.99 1.17 18% -24%Cotton, Ex Linters 3.92 5.74 46% 153%Total 65.49 130.72 100% 41%

10-11 (May data)

Ag Imports = $90.1 billion in 2011 based on May data

2005 2009 2010 %Change$ millions 09-10

Non Competitive Bananas 1,143 1,577 1,791 14% 17% Coffee 2,976 4,070 4,944 21% 80% Cocoa 2,751 3,481 4,300 24% -6% Tea 376 495 583 18% 4% Rubber 1,552 1,274 2,820 121% 83%Competitive Beef 3,651 2,725 2,828 4% 7% Pork 1,281 978 1,185 21% 19% Poultry 390 388 500 29% 16% Dairy 2,686 2,556 2,621 3% 14% Grains 4,527 7,435 7,788 5% 12% Oilseeds 2,998 4,802 5,398 12% 53% Veg Oils 2,505 3,879 4,426 14% 57% Fruits 4,626 8,215 9,172 12% 11% Vegetables 6,410 8,041 9,319 16% 8% Sugar 2,494 3,075 4,043 31% 50% Wine and Beer 6,858 9,195 9,785 6% 13%Total Imports 59,317 64,302 73,883 15% 22%

10-11 (May data)

World Prices, 2006-2011

Prices Up, but Export demand is Inelastic

Fiscal year 2008 2009 2010 2011 (Oct-May data)V Q V Q V Q V Q

Corn 57% 12% -34% -21% -2% 4% 44% -4%Soybeans 71% 2% -5% 14% 22% 19% 23% -1%Wheat 87% 11% -51% -31% -2% 14% 130% 57%Pork 49% 52% -7% -9% 8% 3% 22% 11%Cotton 11% -5% -26% -7% 35% -2% 149% 49%Total 40% 10% -16% -14% 13% 14% 29% 6%

WASDE has 2011-12 US Exports (volume)down somewhat in most recent report

August forecast reduced exports from July– trade forecast due next week

2009-10 2010-11 2011-12

US exportsWheat 23.9 35.1 29.9Coarse grains 54.7 50.4 47.5Oilseeds 41.7 41.7 38.9Cotton 12.0 14.4 12.3World ending stocksWheat 198.9 191.7 188.9Coarse grains 195.4 160.9 147.2Oilseeds 71.0 78.0 69.5Cotton 44.3 45.0 52.7

in million metric tons

U.S. Weekly Corn Exports - World Total• 2010-11 corn exports (volume) at 6 year low• WASDE projects corn exports (volume) down further next year• ROW may feed wheat as a substitute• But advance sales of 2011-12 crop 68% larger than last year!

• Chinese stock holding (and trade) policy can have a major influence on world prices –differs by commodity

• From 2006-07 to 2010-11, the Chinese stocks-to-use ratio for soybeans went from 4% to 23%. This radical shift in stocks accounts for much of the U.S. additional soybean area being needed to satisfy Chinese imports.

• Implications:– Food grain Price and quantity disconnected from world markets– Income growth and dietary transition effects– Relevance of world stocks– Chinese shocks & world markets (wheat shortfall & drought

• Look at Chinese stocks when PS&D is updated!

Chinese Policy & Soybean Imports

Chinese policy for soybeans different from that for other agricultural commodities?

Soybean imports continue to grow, but more slowly if stock-building is doneCorn imports small, at 1-2 mmt, relative to Chinese domestic and world markets

Exchange rates• Volatility persists?

– $/Euro 2009 -- Jul 1.40 Nov 1.49– 2010 -- Jun 1.20 July 1.29 – 2011 -- April 1.45 August 1.44

• Trade deficit increasing recently• Low interest rate policy of Fed persists• Economic performance expected abroad?

– Weak in Europe, U.S.– Stronger in emerging economies

• $ is weak now, and sets a background for high agricultural prices• European debt crisis has kept $ stronger (but not so much)• Commodity boom stalled – weak dollar means higher commodity prices,

agricultural prices lag• $ is a proxy for other macroeconomic factors – global growth, inflationary

expectations

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Bilateral exchange rates matterChinese Yuan and Brazilian real appreciating

European Debt Crisis also matters to world growth, Austerity measures likely to exacerbate slowdown

Global Economic Growth

Growth stronger for emerging economies than Europe, Japan or US

Projections down everywhere in 2011

Emerging economies fighting inflation

Projections2009 2010 2011 2012

World Output –0.5 5.10 4.30 4.50

Advanced Economies –3.4 3.00 2.20 2.60

United States –2.6 2.90 2.50 2.70Euro Area –4.1 1.80 2.00 1.70    Germany –4.7 3.50 3.20 2.00    France –2.6 1.40 2.10 1.90    Italy –5.2 1.30 1.00 1.30    Spain –3.7 –0.1 0.80 1.60J apan –6.3 4.00 –0.7 2.90United Kingdom –4.9 1.30 1.50 2.30    Newly Industrialized Asian –0.7 8.40 5.10 4.50

Emerging and Developing 2.80 7.40 6.60 6.40

Central and Eastern Europe –3.6 4.50 5.30 3.20

Russia –7.8 4.00 4.80 4.50Developing Asia 7.20 9.60 8.40 8.40

    China 9.20 10.30 9.60 9.50    India 6.80 10.40 8.20 7.80Latin America and the Caribbean

–1.7 6.10 4.60 4.10

    Brazil –0.6 7.50 4.10 3.60    Mexico –6.1 5.50 4.70 4.00Middle East and North Africa 2.50 4.40 4.20 4.40

Sub-Saharan Africa 2.80 5.10 5.50 5.90

Table 1. Overview of the World Economic Outlook Projections

Growth in Europe and Asia slower in recent news

• Euro area – 2nd Quarter 0.2% Q/Q 1.7%Y/Y– 1st Quarter 0.8% for EU– Germany 2nd quarter 0.1%

• against expectations of 0.5%– France at 0% Q/Q– UK 0.2% in Q2, 0.5% in Q1, 0.7% Y/Y

• China 9.5% Y/Y in 2nd Q– 10.3% in 2010, 9.2% in 2009 (recession)

• Japan -1.3% Q2 Y/Y- better than expected!

GDP has influenced trade volume, including agricultural trade, more so than prices

World total exports:

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Quarterly US exports – Total, Ag, Corn and Soybeans – 2005 to 2011:I

2005 2006 2007 2008 2009 2010 2011

Agricultural productsCornSoybeansMeat and poultryExports

Trade Agreements on Hold

• WTO negotiations stalled – no real progress since 2008 Ministerial– 2011 December Geneva Ministerial (and

2009) not about Doha• US bilateral agreements with Korea,

Columbia, Panama still not ratified– USDA/FAS, Obama administration have

recently pushed to move these forward without success

WTO, Disputes and the Farm Bill• Trucking dispute with Mexico (NAFTA) finally

resolved – benefits ag exports• At high prices we are now in compliance with

WTO commitments– But recent safety net policy conflicts with WTO

decoupling concept• Brazil Cotton dispute led to payoff to Brazil,

commitments for reform in new Farm bill– Technical assistance fund criticized in budget debate!

• Trade title in 2008 – focused only on export promotion– SPS, Technical assistance, Market access, Capacity building

programs, Disputes

Closing Thoughts• Strong (record) year for US ag exports, could be even

stronger if short crop in 2011– Export demand has been inelastic– WASDE cuts in export quantities may not happen?

• 2nd commodity boom stalled?– Global recession would dampen export demand– International economic performance impacts dollar, prices, US

exports, recovery• Eventually trade deficit and low interest rates should

mean weak dollar– European debt keeping $ “stronger” – but not so much?– Bilateral rates show more effect (Brazil, even China)

• Brazil WTO cotton dispute may influence farm bill – WTO not entirely ignored