Download PDF for Fall 2017
Agricultural Policy Review home

The Ebbs and Flows of International Trade

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

As we have detailed in various articles in this and other ISU outreach publications, international trade is a significant demand component for our agricultural markets. For the major US agricultural commodities, exports capture between 12 (cattle and corn) and 85 (cotton) percent of total use. Many factors shape international demand, from the growth, or lack thereof, in the general economy or the population to the agricultural and trade policies employed by various countries. At a time where the US agricultural sector is hoping to find the bottom of the economic downturn it is in, it is searching for growth in traditional markets and opening in new markets to bring about a financial resurgence; and, with 95 percent of the world’s customers outside of our borders, the potential for growth is sizable.

The 2017 marketing year is shaping up to be a mix for US agriculture on the export front. In general, there is export growth for most commodities, but a few are suffering a setback. That pattern holds for the major Iowa commodities. The trade policy uncertainty surrounding some of trade agreements has also seemed to have a mixed impact on trade flows. Despite the tension in the NAFTA renegotiations, agricultural export sales to Canada and Mexico have been higher for Iowa’s commodities. However, concerns about the KORUS agreement have coincided with some reversals in agricultural trade.

Figure 1
Figure 1. Shifts in US Beef Export Sales
Source: USDA-FAS

The livestock/meat export picture is mainly of growth. US beef export sales are nearly 10 percent higher than at this time last year. Figure 1 details the export sales changes for the six largest export markets and the combined impact across all US beef export markets. Five of our six top markets are higher, with the Japanese market leading the export charge as they represent roughly half of the total growth this year. South Korea is the only major market that has taken a step back. Our partners in NAFTA have expanded beef purchases 7–9 percent. While there has been a lot of chatter about the opening of China to US beef, the export impacts will take some time to develop. Currently, the entire direct Chinese pull in the beef market is four times less than just the growth in the Canadian market. Growth outside the major markets has been robust, up 37 percent for the year. So the trade situation for US beef is very positive at the moment.

Figure 2
Figure 2. Shifts in US Pork Export Sales
Source: USDA-FAS

The pork sector is experiencing much larger swings in trade flows, but the overall pattern is similar to beef. Total export sales are up 8.5 percent, compared to last year. Most of the major markets are higher, with the majority of that strength coming from countries where the United States has trade agreements (Mexico, Canada, and South Korea). In fact, the growth in the Mexican pork market is basically the growth in US pork exports. The Japanese and Chinese markets have been the areas where US pork has retreated this year. China tends to be a very volatile market for US pork, with substantial gains in one year offset by losses the next, which looks to be the case this year, as Chinese imports are roughly half of what they were last year. Smaller pork markets are growing at a relatively strong rate, above 25 percent.

Figure 3
Figure 3. Shifts in US Corn Export Sales
Source: USDA-FAS

While the livestock markets are enjoying export growth, the crop markets are dealing with larger international competition and, thus far, smaller export sales. For corn, the downturn was expected. USDA has consistently projected lower corn exports for the 2017/18 marketing year. Three of our top six markets have increased purchases, but the growth in bushels is relatively small. Mexico has purchased a bit more corn, but the shrinkage in other markets overwhelms that growth. Japan is down over 40 percent, South Korea is 80 percent lower, and smaller markets are down an average of 66 percent. Sales to unspecified destinations, labeled as “Unknown,” are 57 percent lower. Overall, corn export sales are down 36 percent or 300 million bushels compared to last year. By the end of the marketing year (August 2018), USDA expects corn exports to be roughly 450 million bushels lower.

Figure 4
Figure 4. Shifts in US Soybean Export Sales
Source: USDA-FAS

Soybean export sales so far this marketing year are also off to a disappointing start. Direct sales to China, the largest import market by far, are 13 percent lower. China is also the major destination for the “Unknown” sales, which are off by 34 percent. While we are seeing soybean sales growth in other markets (Mexico, Indonesia, Thailand, and the European Union), the downturn in the Chinese market is driving the current numbers. However, while the current situation is weaker, USDA’s projections show a rebound in soybean exports and a continuation of record export sales. With current sales running 160 million bushels below last year’s pace, exports will have to surge to meet the 75 million bushel growth projected by August 2018.

On the whole, US agricultural exports remain very strong. Agricultural trade and the US agricultural trade surplus peaked in 2014. While there has been some retracement since then, the United States still exports roughly $140 billion of agricultural products and has maintained a positive agricultural trade balance since 1994. Current projections for 2017 and 2018 show export values holding firm and the agricultural trade balance staying in the $20–$30 billion range. Furthermore, while trade renegotiations could upset those flows, for most the part, US agricultural trade has been only seen minor disruptions thus far. Farmers and ranchers hope that continues to be the case.