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USDA Outlook for U.S. Agricultural Trade


23 February 2012

Outlook for US Agricultural Trade February 2012Outlook for US Agricultural Trade February 2012

Fiscal 2012 agricultural exports are forecast at $131 billion, down $1 billion from the November forecast and $6.4 billion below fiscal 2011.
Outlook for U.S. Agricultural Trade

Compared to last year, grain and feed exports are forecast down $3.9 billion with wheat, corn, rice, and feeds all lowered, due to competition especially from the Black Sea region. Oilseed and product exports are down $4.2 billion, mostly due to strong early-season shipments from South America. Cotton exports are forecast down $2.7 billion due to lower U.S. supplies and falling prices. Record horticultural exports are forecast at $28 billion, $2.1 billion above 2011. The forecast for livestock, poultry and dairy is up $1.9 billion.

The fiscal 2012 import projection is raised to $106.5 billion. This represents a 13- percent increase from 2011. The estimated gains for the various import sectors are: sugar and tropical products—$5.5 billion more than in 2011; horticulture products— $3.9 billion higher; oilseeds and products—up $600 million; livestock and dairy products—up $1.2 billion; and grains and feeds—up $950 million.

Given that the forecast for exports is down while imports are rising, the trade balance for 2012 is a surplus of $24.5 billion, down from the $43 billion for 2011.

Economic Outlook

View for 2012 World Growth Down Modestly; Inflation Down; Dollar Edges Lower

World growth in 2012 is expected to be down from 2011 with world inflation and the dollar down modestly from 2011. Recent debt-related turmoil in European financial markets, as well as weak employment and gross domestic product (GDP) growth have brought a European recession which is likely to continue into 2012. Most Asian economies will show strong, but slowing, growth compared to 2011. Inflation in the United States and the Euro-zone is expected to be low in 2012 compared with 2011, due to low U.S. factory utilization rates, despite a modestly improving labor market, and higher European unemployment. The modest pickup in U.S. growth is not large enough to fully offset the lack of growth in the Eurozone. In the developing world, overall inflation is expected to fall, due to credit tightening and despite tighter labor markets. The net result is world consumer price index (CPI) inflation slowing to 2.6 percent in 2012, down from the 4.1 percent seen in 2011. The two main risks to world growth are a significant spillover of the Euro-zone problem to other developed country financial institutions and markets, or a significant disruption to oil supplies.

Overall trade growth is expected to be only 4 percent in 2012, down from over 6 percent in 2011. Despite slower world growth, the outlook for agricultural trade is promising. Development of natural gas and other energy sources, as well as slower world growth, are expected to mitigate the impact of rising crude oil prices despite supply issues. A weak dollar will make U.S. goods more competitive and low interest rates are expected to provide continued inexpensive credit for U.S. exports in 2012.

Export Products

The fiscal 2012 forecast for grain and feed exports compared with 2011 is forecast down $3.9 billion with wheat, corn, rice and feeds all lowered, due to competition especially from the Black Sea region. Compared with November, the forecast is down $1.4 billion to $34.0 billion. Corn, wheat, and feed products are down from November as are most other categories. Corn exports fall $300 million to $13 billion. Values are lowered from November, but are still at historic highs, underpinned by domestic stocks expected at the lowest level in 16 years. Despite strong competition from the Ukraine, volumes are boosted partly by higher demand from China. Competition from Argentina is reduced due to concerns affecting new crop supplies there.

Compared with fiscal 2011, fiscal 20120wheat exports are down $3.5 billion to $8 billion, with sharply lower shipments expected. Compared with the November forecast, wheat exports are down $200 million on slightly lower volume and unit values. Wheat values are reduced with lower corn prices and record global wheat supplies. Volume, while slightly lower, is supported by sales of wheat to Mexico and South Korea for feeding. Rice exports are down $200 million to $1.8 billion based on lower prices. India’s re-entry into the export market is driving all prices down, making the U.S. less competitive. Additionally, larger exports by Brazil into Western Hemisphere markets have cut U.S. market share.

The fiscal 2012 forecast for oilseeds and products is $25 billion, some $4.2 billion lower than 2011, mostly due to strong early-season shipments from South America. This is down $1 billion from the November forecast on lower soybean export volume and unit value. Reduced volume quarter-to-quarter reflects weak early season sales from the U.S. following a record crop in Brazil. Minimal growth in China’s import demand added to slow U.S. sales while contributing to a decline in export unit values. However, Brazil, Argentina, and Paraguay are expected to have smaller exportable supplies from this year’s crop which may support higher unit values in the coming months and allow for additional U.S. sales. Soybean meal volume is forecast lower, as is export value, due to smaller crush and competition from other feed ingredients. Soybean oil volume and value declines are expected on stronger domestic use, smaller exportable supplies, and competition from other oils. The 2012 cotton export forecast is down $2.7 billion from 2011 to $6.2 billion, due to lower U.S. supplies and falling prices. The 2012 forecast is raised $200 million since November, as higher-than-expected unit value will more than offset lower export volume. The average export unit value is raised as higher priced contracts from last year work their way through to shipment. Export volume is lowered due to the drought.

The 2012 export forecast for livestock, poultry, and dairy is raised $1.9 billion from 2011 to a record $29.2 billion. Compared with the November forecast, the forecast is up $1.3 billion, with gains in all categories, but most significantly for dairy, poultry, and cattle. The dairy products forecast is raised $400 million due to stronger-than-anticipated exports of cheese, whey, lactose, and nonfat dry milk. Strong import demand from Asia and Mexico is expected to continue to drive exports. For poultry products, higher unit values, partnered with escalating Asian demand, lead to an increase of over $300 million. Other livestock products are revised higher by more than $300 million, mostly on surging live cattle exports (largely breeding cattle to Russia and Turkey). Pork exports are raised $100 million on greater volumes to Asia.

The fiscal 2012 export forecast for horticultural products is unchanged at a record $28 billion, up $2.1 billion above 2011. The forecast is unchanged from November. For most products, expanding exports are due primarily to higher unit values, a driving force over the last several years. The fresh fruit and vegetable export forecast remains at $6.9 billion, with exports to Canada, Europe, and Japan expected to continue rising. Processed fruit and vegetable exports are unchanged at $6.7 billion on sustained growth in top markets. The whole and processed tree nut forecast remains at $5.7 billion, on the strength of China’s growing demand for almonds, pistachios, and walnuts.

Regional Exports

Revised Outlook for 2012

The 2012 forecast for agricultural exports is lowered $1 billion from the November forecast to $131 billion. The export forecast for Asia is unchanged, as an increase for South Korea is offset by reductions in Southeast Asia. The Western Hemisphere is up on strong exports to Mexico, while the EU and North Africa are down due to increased grain and oilseed competition.

Asia

The fiscal 2012 forecast for China is unchanged from November at $17 billion. As expected, early season soybean shipments are down from last year because of greater competition from South American supplies. However, U.S. soybeans may be in a more competitive position later in the year given reduced prospects for the current crop in Brazil and Argentina. First quarter results show that exports of soybean oil and cotton are also down but pork and tree nut shipments are up from last year’s pace. China is expected to fall to the third largest market behind Canada and Mexico after finishing as the top market last year.

The forecast for South Korea is raised $400 million to $6.9 billion, as higher wheat, and consumer oriented product exports to South Korea more than offset reduced soybean shipments. Corn is the largest export commodity to Japan, and while shipments are down only slightly for the first quarter, competition from Brazil and Argentina is reducing export sales and should lead to a further slow-down in shipments as the year progresses. However, reduced corn exports are expected to be offset by greater high-value product exports such as red meats. Therefore, the forecast for Japan is unchanged at $13.5 billion. The forecasts for Thailand and Indonesia are each lowered $200 million.

Western Hemisphere

The export forecast for Canada is unchanged at $19 billion, with Canada expected to be the top market for U.S. agricultural products in fiscal 2012. Mexico is forecast up $500 million to $17.5 billion as a poor domestic corn crop creates room for greater U.S. corn shipments. Prospects for wheat, dairy, and poultry exports also support the increase in the forecast. Exports to the Caribbean are raised $200 million while Colombia is forecast down $200 million on expected lower shipments of cotton, soybean, and soybean oil exports.

Europe, Africa, and the Middle East

The export forecast for the EU is down $1 billion to $10 billion as increased competition from global wheat and soybean supplies impacts U.S. shipments of these products. However, horticultural exports typically account for about 40 percent of all U.S. agricultural exports to the EU and shipments are even with last year’s record pace. The forecast for Egypt is lowered $200 million despite the recent announcement of corn sales. Shipments for the first quarter of the year support the forecast of lower exports to North Africa and the Middle East due to greater competition from Russian wheat supplies. North Africa is forecast down an additional $400 million from the November forecast due to the reduction in Egypt along with other smaller importing nations in the region.

Import Products

Due largely to the 19-percent surge in the volume of U.S. agricultural imports from October to December 2011, the import projection for fiscal 2012 is raised to $106.5 billion. This represents a 13-percent increase from 2011 and a $1 billion gain from November’s forecast of $105.5 billion. The 21-percent bump in U.S. import value for agricultural products in the first quarter is consistent with the average 21-percent quarterly import jumps from January to September 2011. An important difference between last quarter’s import gains and the preceding three quarters is the sizable increase in quantity of foreign shipments. The first three quarters in calendar 2011 were principally marked by high import price inflation averaging 15 percent. In contrast, import unit values rose only 2 percent in the first quarter from the same period in 2010.

Considering the still tepid personal income growth (through December 2011), U.S. consumers are not expected to sustain double-digit food import purchases for the next three quarters. The volume of shipments from foreign suppliers in 2012 is likely to be about half of the 13-percent projected gain in total import value. Thus, import prices are anticipated to rise by about 7 percent through September 2012, which is half of import unit-value inflation during the last three quarters of fiscal 2011. The estimated gains for the various import sectors are: sugar and tropical products—$5.5 billion more than in 2011; horticulture products up $3.9 billion; livestock and dairy products up $1.2 billion; and grains and feeds up $900 million. The projected $12 billion total import value increase in 2012 from 2011 is $3.5 billion lower than the actual $15.5 billion gain in 2011 from 2010.

World food prices declined 8.5 percent in October-December 2011 from JulySeptember 2011. The preceding quarterly drop was 4 percent. After peaking in the spring of 2011, average global food prices have steadily subsided. This downward trend is reflected in world prices of sugar, rubber, palm oil, coffee, and cocoa beans. Other food commodity prices are either easing or flat since mid-2011, breaking the upward trend that started in 2009. The U.S. dollar has gradually fallen in exchange value since 2009. This diminution of consumer’s purchasing power in terms of foreign currency over the past 2 years is expected to limit import growth in 2012. The dollar’s depreciation will keep import prices effectively high for American consumers despite their recent downward direction.

The slowly improving U.S. economy will keep import demand relatively strong. All import product groups are projected to post higher import values this year. Again, sugar and tropical products (coffee, cocoa, rubber) as well as tropical oils (coconut, palm, and palm kernel) lead the change with double-digit rates. In addition, imported grains and feed, livestock and dairy, and horticultural products are also projected to increase at a double-digit pace. Consumer spending for food was strongest in the first three quarters of 2011 then slowed in the fourth quarter. This spending slowdown, although expected to be only temporary, will temper import demand unless disposable income exhibits a sustained recovery.

The forecast for U.S. beef imports for 2012 is slightly higher than in November as exports from Australia and New Zealand are expected to increase this year, but growth will be limited by producers retaining stock for breeding. Continued rebuilding of the herd in Canada will constrain some exports south of the border, but shipments of processing beef are still expected to be significant because of strong U.S. demand. Pork imports are anticipated to be lower due to increasing domestic supply, but imports of live swine from Canada are larger than in 2011 due to demand for early weaned pigs in response to strong hog prices. Imported cattle estimates are unchanged, but value is higher as tight domestic supplies boost prices. The dollar’s weakness is also a factor in lower beef and pork import tonnage. Of the 18.6-percent import volume growth in the first quarter of fiscal 2012, the share of horticultural products is only half those of sugar and tropical products as well as grains and feeds, and only a third of the share of oilseed products. Despite being the largest in terms of imported volume of shipments (due largely to waterladen products), horticultural products accounted for only 22 percent of the $4.5- billion gain in total import value last quarter. This is because import unit values for the other product groups had average inflation rates in fiscal 2011 that were at least twice as high as horticultural products as a group.

In contrast to horticultural and livestock products, import volumes for bulk grains, feeds, oilseeds, and oilseed products, including vegetable oils, registered doubledigit growth in the first quarter, indicating robust demand. Combined with largely higher import prices, the import values of grains, feeds, oilseeds, and oilseed products also posted double-digit increases. These strong import gains are not expected to be sustained as domestic grain and oilseed production respond positively to their high 2011 prices. As a result, combined with falling world prices for tropical products and the weak dollar, total U.S. agricultural import value for the rest of fiscal 2012 will not keep pace with the first quarter’s large initial shipments.

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