Grain Exports Are Behind Expectations
While demand overall for U.S. grains remains strong, one category that has lost its luster is exports. Grain export sales are running behind year-ago levels. In my opinion, there are three reasons for this. First, competition from South America is fierce. The second reason is that U.S. (and global) supplies are plentiful and importing countries are able to buy as needed, making the U.S. farmer store the crop here until it needs to ship. The last is tied to potential changes in NAFTA.
First, let’s dive into where sales actually are vs. year-ago levels and compared with the declines already pegged by the USDA. For the export sale week which ended November 16, 2017:
- Wheat sales are down 8% vs. a year ago. Shipments are 8% behind with the USDA forecasting a 5% decline on the year.
- Soybean sales are running 17% behind; shipments are 13% behind with the USDA forecasting a 4% increase on the year.
- Corn sales are 27% behind a year ago; shipments are 37% behind with the USDA forecasting a 16% decline on the year.
SOUTH AMERICAN COMPETITION
According to an article from Reuters, “China is expected to buy about 5 million tonnes of soybeans from Brazil for the fourth quarter of 2017, double the 2.49 million tonnes shipped over the same period last year. For U.S. soybean exporters, the October-December period is crucial, accounting for an average of 53% of calendar year shipments for the past five years, according to U.S. Census Bureau trade data.” When looking at corn exports, Brazil is now expected to export 33 million tons of corn, up from the year prior.
One would think with prices so low, countries would be eager to buy and import as much as possible right now to restore their internal stocks. While I’m sure everyone likes a good bargain, the reality is those countries will only buy as needed rather than buy in bulk, stock up, and store the cheap grain in their backyard. And why wouldn’t they? Unless South America has a dramatic weather issue in the coming months, global supplies will continue to be ample. This will allow countries in need of grain to buy from either hemisphere year-round as needed, making farmers and elevators store the grain until it needs to get shipped across the ocean. Until there is a weather threat or unless the U.S. dollar can fall lower, the reality is U.S. exports may continue to lag.
The threat of the U.S. exiting or severely altering the current NAFTA agreement has already resulted in precautionary measures of Mexico importing some grain from South America, rather than its traditional, logistically close source of the U.S. NAFTA negotiations continue and now may continue into March 2018. Any wild gyrations to NAFTA could result in a black swan reaction to market prices. This is one topic you’ll want to continue to monitor closely in the months ahead.
The biggest takeaway: If exports don’t pick up steam in the coming months, the extra supply from this year’s harvest will stay on U.S. soil. More grain staying on U.S. soil will actually increase U.S. ending stocks for grain and ultimately keep prices lower.
If you have questions, you can reach Naomi at email@example.com .
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