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International Trade Has Been Major Source for Strengthening Prices

Lee Schulz (lschulz@iastate.edu) and Chad Hart (chart@iastate.edu)

Table 1. US Beef Exports Changes, Jan.-Nov. 2016
Table 1
Table 2. US Pork Exports Changes, Jan.-Nov. 2016
Table 2
Figure 1. US Corn Export Sales
Figure 1
Figure 2. US Soybean Export Sales
Figure 2

Over the past few months, crop and livestock prices have worked their way higher despite record production across the board. Those large supplies have been met by strong demand for agricultural products. International demand has increased significantly and that has allowed prices to rise. Recent policy discussions, such as the potential for the US to impose import taxes, have heightened concerns that export demand may retreat. However, currently, the international marketplace is providing a surge of support to the US farm economy. Protein demand globally seems to be driving export growth for both livestock (direct meat demand) and crops (feed grain demand to raise more livestock and meat). All export data shown is as of Feb. 4, 2017.

For the beef industry, most of the export surge has come from the Pacific Rim. Japan and South Korea have accounted for most of the double digit growth in beef exports. Japan has re-established itself as the top market for US beef after a multi-year setback in trade following the discovery of bovine spongiform encephalopathy (BSE) in the United States in 2003. Roughly 25 percent of all US beef exports now enter Japan. In 2016, South Korea emerged as our second-largest market, taking 17 percent of our beef exports. As the policies in the US-Korea Free Trade Agreement have come into effect, US beef exports to South Korea have grown significantly. Rounding out our top five beef export markets are Mexico, Canada, and Hong Kong. Mexico and Canada are our partners in the North American Free Trade Agreement (NAFTA), so trade agreements have factored heavily in beef trade. The United States’ withdrawal from the Trans-Pacific Partnership (TPP) has dampened the outlook for US beef export growth, as the TPP agreement was projected to expand US beef exports by roughly 8 percent in the partner countries (estimate from the US International Trade Commission), with most of the growth originating from Japan and Vietnam. However, despite that setback, current USDA export projections for 2017 show beef exports growing by 6 percent.

Pork exports have also increased over the past several months. China has been the major source of the surge, doubling pork purchases from the United States. While Japan has traditionally been our top market for pork, Mexico took over the top spot in 2015 and continues to be our largest pork market, capturing 30 percent of US pork exports, and Japan is now second with 24 percent. Canada, China, and South Korea each absorb roughly 10 percent of US pork exports. Therefore, as with beef, most major pork export markets are also partners in trade agreements. USDA’s current projections show pork exports increasing by 5 percent in 2017, continuing the growth from the past year.

Corn export sales this marketing year have consistently exceeded our export pace for the last few years. As harvest began, the export market had already purchased over 600 million bushels of US corn, roughly doubling the advance sales from the 2015 crop. Since then, another billion bushels have been sold to international buyers. Mexico is our largest customer, buying just over a quarter of all corn exports. Japan is second with 15 percent. South Korea, Colombia, and Taiwan round out the top five corn export markets. Just behind Taiwan in corn exports is Peru. Within the past few years, Colombia and Peru signed trade agreements with the United States, and effects of those agreements are now showing up in increased corn demand from both countries. Current USDA projections indicate by the end of the marketing year (August 31, 2017), the United States will export 2.225 billion bushels of corn. That computes to a 17 percent growth in US corn exports; and given the record 15 billion bushel corn crop this past fall, export growth was definitely needed to stabilize prices.

The growth in soybean exports has not been as dramatic as for corn this year, but then again, soybean exports have set records for the past five years in a row. Exports are a vital portion of the US soybean market, as roughly half of all of the soybeans produced in the United States will be shipped to other countries. For comparison, approximately 12 percent of all US corn and beef and 20 percent of all US pork is exported. China is by far the dominant export destination for soybeans. So far this marketing year, China represents two-thirds of all soybean export sales. Currently, the annual growth in China’s soybean demand from the United States is 300 million bushels, nearly the size of Indiana’s total soybean production. However, we have also seen growth in soybean demand from the European Union, Japan, and Indonesia. The only weak spot in soybean export demand has been Mexico, as sales are off by over 25 percent. USDA’s projections have soybean exports finishing above two billion bushels for the first time ever with the 2016/17 marketing year.

Across all of these commodities, export demand has surged at a crucial time. US agricultural production has been incredibly strong for the past few years. The record meat, corn, and soybean supplies have significantly reduced prices. Without the export boost, that trend would have continued. However, with exports growing, crop and livestock prices have recovered enough to improve farm cash flows and provide some profit opportunities. The political rhetoric over the past few weeks has created a great deal of uncertainty about US trade policy. US agriculture has benefited significantly from trade agreements that have lowered tariffs and other trade barriers. With the re-opening of some of those agreements and the talk of new border taxes, US agriculture could see a reversal of some of those gains.