Agricultural Trade and the Implications for the U.S. Farm Sector May 16, 2018 Ames, IA David Oppedahl Senior Business Economist Federal Reserve Bank of Chicago 312-322-6122 david.oppedahl@chi.frb.org www.chicagofed.org
Global Trade in Action 8.5% of U.S. Exports in 2015 were Food and Agricultural Products, and 13% of District Exports
IMF real GDP growth forecast for 2018
The dollar s exchange value has dipped since the start of 2017, boosting exports 120 (Real Broad Trade-Weighted Exchange Value of the US$) {March 1973=100} 110 100 90 80 1991 1996 2001 2006 2011 2016 Source: Board of Governors of the Federal Reserve System
Real U.S. exports rising again, but more slowly than imports 300 (billions of 2015 dollars, SA) 250 200 150 100 50 1992 1996 2000 2004 2008 2012 2016 Exports Imports Sources: Bureau of Economic Analysis and Census Bureau
Global Marketplace U.S. trade surplus for agriculture Filling empty containers with soybeans headed for China
Value of agricultural exports rose in 2017, but expected to be about the same in 2018 billion $ 160 140 120 100 80 60 40 20 0 Exports Imports Surplus FY1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2018* *USDA projection Source: USDA, Economic Research Service
Agricultural Exports billion dollars 16 14 2018 12 2017 10 8 Jan. Mar. May July Sep. Nov. Source: USDA, Economic Research Service
High-value agricultural exports outpaced more variable bulk exports, but both slowed billion 2016$ 100 80 60 40 20 High-value Bulk 0 1976 1981 1986 1991 1996 2001 2006 2011 2016 Source: USDA, Economic Research Service
Trade agreements won t repeal the variability of bulk exports 3000 million bu. 2500 2000 1500 1000 Wheat Corn 500 Soybeans 0 1976 1981 1986 1991 1996 2001 2006 2011 2016 (USDA data for end of marketing year)
Growth in agricultural exports to NAFTA partners (billion $) 25 20 15 10 Canada Mexico 5 0 CY1990 '95 2000 '05 '10 '15
But agricultural exports to China caught up (billion $) 30 25 20 15 10 5 Canada China Mexico 0 CY1990 '95 2000 '05 '10 '15
U.S. agricultural exports by top destinations (billion $) Country FY1990 Country CY2017 Japan 8.19 Canada 20.5 European Union 7.44 China 19.6 Canada 3.73 Mexico 18.6 Former USSR 2.99 Japan 11.9 South Korea 2.71 European Union 11.5 Mexico 2.67 Taiwan 1.82 China 0.91 Egypt 0.76 Hong Kong 0.69 Saudi Arabia 0.50 Iraq 0.50 Algeria 0.49 Pakistan 0.39 Philippines 0.35 Source: USDA, Economic Research Service South Korea 6.9 Hong Kong 4.2 Taiwan 3.3 Indonesia 2.9 Philippines 2.6 Vietnam 2.5 Columbia 2.5 Thailand 1.8 Turkey 1.7 India 1.6
Iowa s agricultural exports hit a plateau (billion $) 12 10 8 6 4 2 0 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: USDA, Economic Research Service
Agricultural exports by regional states (2016 in million $) U.S. Iowa Illinois Indiana Michigan Wisc. Total (rank) 134,242 10,608 (#2) 8,345 (#3) 4,604 (#7) 2,044 (#20) 2,898 (#18) Soybeans 22,819 3,113 (#2) 3,205 (#1) 1,706 (#4) 564 (#13) 532 (#14) Corn 9,890 1,747 (#1) 1,558 (#2) 678 (#5) 229 (#13) 282 (#10) Pork 5,936 1,999 (#1) 382 (#4) 319 (#5) 97 (#12) 31 (#18) Dairy 4,703 113 (#12) 43 (#23) 91 (#14) 223 (#7) 683 (#2) Source: USDA, Economic Research Service
Export Shares of U.S. Agricultural Production, 2011-13 Plant products Corn 15% Processed vegs 25% Fresh fruit 30% Soybeans 40% Wheat 51% Rice 55% Tree nuts 72% Cotton 77% Animal products Beef 10% Pork 22%
7th District Crop Yield Indexes (1964=100) 300 250 200 Corn 150 100 Soybeans 1964 1970 1976 1982 1988 1994 2000 2006 2012 2017 Source: USDA, National Agricultural Statistics Service
Real Cash Crop Prices 40 ($/bushel for Central IL, adjusted by CPI-U for January 2010) 30 20 10 0 1976 1981 1986 1991 1996 2001 2006 2011 2016 Corn Soybeans Sources: The Wall Street Journal and U.S. Bureau of Labor Statistics
Corn production down from record in 2016/17 18 15 13.8 14.2 13.615.1 14.614.0 billion bushels 12 9 6 7.5 9.5 6.3 10.1 7.4 9.2 9.2 9.8 9.4 10.0 9.5 9.0 10.1 13.1 12.4 11.8 13.012.0 12.3 11.110.5 10.8 3 0 1991/92 96/97 01/02 06/07 11/12 16/17 Source: USDA, National Agricultural Statistics Service
Growth in industrial demand (especially for ethanol production) surpassed feed demand for corn 8 Food, Seed & Industrial billion bushels 6 4 2 Residual & Feed Exports 0 1991/92 96/97 01/02 06/07 11/12 16/17 Source: USDA, World Agricultural Outlook Board
Corn prices expected to be higher in 2018/19 as stocks tighten $9 30% 25% Price per bushel $6 $3 14% 11% 17% 10% 15% 19% 20% 18% 16% 12% 9% 20% 18% 13%14% 13% 12% 9% 8% 7% 9% 13%13% 16% 15% 12% 20% 10% Stocks/use ratio 5% $0 1991/92 96/97 01/02 06/07 11/12 16/17 0% stks/use ratio price Source: USDA, World Agricultural Outlook Board
Soybean production expected to be down from records of two previous years 5 4.3 4.4 4.3 billion bushels 4 3 2 1 2.0 2.2 1.9 2.5 2.2 2.4 2.7 2.7 2.6 2.8 2.9 2.8 2.5 3.1 3.1 3.2 2.7 3.0 3.4 3.3 3.1 3.0 3.4 3.9 3.9 0 1991/92 96/97 01/02 06/07 11/12 16/17 Source: USDA, National Agricultural Statistics Service
Soybean exports expected to be up, while crushing projections are flat 2.5 Exports billion bushels 2.0 1.5 1.0 0.5 Crush 0.0 1991/92 96/97 01/02 06/07 11/12 16/17 Source: USDA, World Agricultural Outlook Board
Soybean prices expected to rise as stocks dip in 2018/19 $16 19% 20% Price per bushel $12 $8 $4 16% 14% 14% 13% 13% 11% 11% 9% 9% 8% 8% 7% 6% 5% 4% 7% 7% 5% 5% 5% 5% 13% 9% 7% 5% 5% 15% 10% 5% Stocks/use ratio 3% $0 1991/92 96/97 01/02 06/07 11/12 16/17 stks/use ratio price 0% Source: USDA, World Agricultural Outlook Board
Primary global soybean flows
Seasonal soybean trade with China
Real USDA Livestock Prices 250 ($/hundredweight, adjusted by CPI-U for January 2010) 200 150 100 50 0 1976 1981 1986 1991 1996 2001 2006 2011 2016 Hogs Cattle Sources: USDA, National Agricultural Statistics Service and U.S. Bureau of Labor Statistics
Pork exports overtook beef exports by weight 6 Pork billion pounds 4 2 Beef 0 1990 1995 2000 2005 2010 2015 Source: USDA, Economic Research Service
But pork exports lag beef exports by value 8 billion $ 6 4 Pork Beef 2 0 2000 2005 2010 2015 Source: USDA, Economic Research Service
Dairy exports and milk prices $26 8 Price per cwt. $22 $18 $14 $10 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Exports Price 6 4 2 0 Billion dollars * 2018 USDA forecast Source: USDA, World Agricultural Outlook Board
Midwest agriculture faces choke points with aging waterway infrastructure
Growth in Food Demand Projected population growth: 45% increase in low income countries, 7% in high income countries 1.4 billion live on less than $1.25/day (most hungry or under-nourished) 3.1 billion live on less than $2.50/day (calorie problems solved for most) As income increases from $2 to $10 per day, demand rises for meat, dairy, oils, and fruits After $10 per day, demand for processed food greater than demand for raw commodities World food demand may double by 2050 as people escape from poverty
Population trends changing world trade
Income growth boosts ag trade
Midwest agriculture faces choke points with aging waterway infrastructure
Urbanization drives food trade as well
Increasing consumption of meat and protein as income rises Decreasing consumption of staple foods as income rises
Ratio of % calories by source in low to high income countries
Midwest agriculture faces choke points with aging waterway infrastructure
Resource Constraints Drive Trade At most 12% more arable land available worldwide for agriculture (without destruction) Inferior quality or degraded land in many areas Agriculture uses 70% of world s fresh water Water is a scarce resource in much of the world, but it s not priced that way To meet world food demand sustainably there will need to be huge increases in food system productivity around the world Larger fraction of food to move via trade due to distribution of arable land
Agriculture faces challenges where water is scarce
Future of Agricultural Trade? How to attract the next generation of buyers? Consumer-driven agriculture Innovations in technology and marketing Current trends forecast into the future, but for how long? Disruptive forces lurk Climate change and environmental crises Geopolitical risks Trade negotiations
Midwest agriculture faces choke points with aging waterway infrastructure
U.S. agricultural trade value forecast to 2027 Source: USDA, Interagency Agricultural Projections Committee
Source: USDA, Interagency Agricultural Projections Committee
Source: USDA, Interagency Agricultural Projections Committee
Source: USDA, Interagency Agricultural Projections Committee
Source: USDA, Interagency Agricultural Projections Committee
Growth Potential for Ag Exports Exports are key to profitability of Midwest ag Only large potential growth markets are in low income countries Midwestern comparative advantage in producing products desired by people as they move up the income ladder (animal products and feed, edible oils)
Real net farm income edged up in 2017, but is expected to be down in 2018 billion 2018$ 175 150 125 100 75 50 25 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 gov't payments 2018* *USDA forecast Source: USDA, Economic Research Service
Annual change in farmland values in 7th Federal Reserve District 30 20 Percent 10 0-10 -20-30 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Federal Reserve Bank of Chicago