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Exporting U.S. Ag Is Big Business
With global trade uncertainties, larger global crops, and already large supplies on hand, U.S. farmers face a huge oversupply problem.
For instance, the March USDA Quarterly Stocks Report highlighted that between U.S. on-farm and commercial storage units, the country was sitting on a whopping 8.6 billion bushels of corn.
In June, the USDA projected a 2018/2019 marketing year U.S. soybean carryout at 1.07 billion bushels and a record-large global soybean carryout.
The U.S. soybean ending stocks-to-use ratio, rising only to the 20% level twice in the country’s history, is projected to hit 30% to 40% in 2019/2020 without a China trade deal.
The U.S. will be relying on its current biggest export markets and a handful of new customers to chew through these big piles of corn and soybeans. Here are the top products bought by leading U.S. customers.
The Top 10 Buyers of U.S. Agricultural Products in 2018
U.S. Sales To Mexico, Canada are Vital
A trade war with China is one thing, but the U.S. can’t do without trading business from its neighbors, Mexico and Canada.
These two countries account for one third of U.S. food and agriculture exports. Put into numbers, Canada buys over $20 billion of U.S. agricultural products while Mexico imports $19 billion worth.
As of this writing, all countries were still ironing out the details of a trilateral trade agreement that is being called the USMCA trade deal.
Under the agreement, the USMCA would replace the old North American Free Trade Agreement and guarantee that U.S. ag exports can enter Mexico and Canada duty-free.
Also, the U.S. would capture a bigger part of the Canadian dairy business, and U.S. wheat would get an equitable grading as it enters Canada.
All countries are hoping to nail down a trade deal before the U.S. Congress adjourns for a monthlong August break.
Ryan LeGrand, CEO of U.S. Grains Council, says he can’t stress enough the importance of trade with Mexico.
“Mexico is our most important – if not the most important – market that we have in the world. So, that really needs to be maintained and defended. There’s additional growth opportunity there,” LeGrand says.
In 2018, Mexico was the No. 1 buyer of U.S. corn, purchasing 658 million bushels. The southern neighbor purchased the second-largest amount of U.S. soybeans, behind China, with purchases totaling 16.8 million bushels. Mexico ranks as the No. 2 buyer of U.S. pork and pork products at 1.7 billion pounds.
Last year, Canada and Mexico took over 40% of the pork that was exported from the U.S.
In the spring, the Trump administration announced plans to lift the 25% tariff on steel and the 10% duty on aluminum imports imposed last year on Canada and Mexico. Both countries had retaliated with tariffs on U.S. ag products.
David Herring, the National Pork Producers Council president, weighed in on the significance of the return of pork into the Mexican market.
Mexico’s 20% retaliatory tariff on U.S. pork has cost U.S. producers $12 per animal, or $1.5 billion on an annualized, industry-wide basis, Herring stated in a press release.
Canada Reigns #1
Canada is the top U.S. agricultural export market ($20 billion, over half of its total global ag imports) because it buys a lot of different products.
For example, the neighbor to the north buys $9 million worth of horticultural products each year. Also, it ranks as the second-largest buyer of U.S. ethanol at 352 million gallons.
In 2016, U.S. value-added exports to Canada (e.g., fresh meats, fresh and processed fruits and vegetables, snack foods, prepared foods) were double the value of U.S. value-added exports to Mexico and equal in value to high-value exports to Japan, Hong Kong, South Korea, and China combined, according to the USDA.
Proximity gives the U.S. an advantage over other countries doing trade business with Canada.
In 2016, a USDA attaché reported that “Canada offers stable financial markets and a sophisticated logistics network that supports $120 million worth of food and agricultural products crossing the U.S.-Canada border, both ways, every single day.”
Neil Campbell, USGC‚ Canada consultant, says the Canadian market is very similar to the U.S., but there are differences that need to be respected.
The supply/management system of the dairy, poultry, and eggs industries is driven by domestic production in Canada, Campbell stated in an update on USGC programs in Canada on grains.org. In contrast, the hog and cattle industries are very much integrated with the U.S.
It All Comes Down to China
By Betsy Freese
At press time, China has placed retaliatory tariffs on about $30 billion worth of U.S. agricultural products, with no trade deal in sight.
China, the world’s largest soybean buyer, has put future purchases of American beans on hold. It has made commitments to buy old-crop soybeans this year, 10 to 15 million metric tons, but that hasn’t translated yet to beans shipped, says John Newton, chief economist, American Farm Bureau Federation. “About 200 million bushels have been loaded on ships, but in a normal year, that number would be about 1 billion bushels.”
Trade to China in 2018 was down more than 50% compared with the prior year, says Newton. Soybean exports were down 80%. “Farmers know what that has done to the inventory, ending stocks, and prices. It’s more than soybeans. Dairy products, feed grains, and sorghum are all experiencing headwinds going into the Chinese market.”
About 16% of total U.S. ag exports went to China before 2018. That number will be half that in 2019, according to the USDA. “China is no longer going to be one of our top export markets the longer this continues,” says Newton. “Other trading partners will need to step up to the plate.”
The tariff situation has exposed the strategic misunderstandings between the two governments, says Wendong Zhang, Extension economist at Iowa State University. Zhang grew up in the Shandong province and has been working in the U.S. for the past decade. “Farmers need to understand the rapid changes taking place in China, both in agriculture and the general economy,” he says.
8 THINGS TO REMEMBER ABOUT CHINA
Here are eight key points from Zhang to give you a better understanding of China.
1. China doesn’t have the comparative advantage in row-crop production, so it will continue to be a major global buyer for soybeans, ethanol, and potentially corn. The trade war is limiting our ability to fill China’s growing ethanol needs for its 2020 ethanol mandate.
2. Even if a deal is reached in 2019, the trade war will do serious injury to U.S. ag exports because China is already diversifying away from U.S. products. “Overall, China will be a significant buyer for agriculture exports, but even if we reach an agreement tomorrow, the long-lasting damage is already done,” says Zhang.
3. Expect to see more Chinese investment in Brazilian infrastructure to lower transportation costs.
4. China is already changing feed rations to reduce the demand for soybean meal.
5. Don’t trust numbers coming out of China. There are serious problems with agricultural data quality, but the collection process is starting to improve.
6. Pork production is down at least 30% in China due to African swine fever (ASF). The deadly disease is in every province and is spreading throughout Asia. That means opportunity for U.S. animal protein producers. Yes, there is a tariff on pork going into China, but the country has commitments to buy over 150 million metric tons of U.S. pork this year. China is also buying more U.S. poultry. With ASF, a rising tide is lifting all boats.
7. It has been three years since China lifted the trade ban on U.S. beef, but it has yet to buy some. There are a lot of nontariff barriers to trade with China.
8. China plays the long game. The Chinese president, Xi Jinping, will likely still be in power long after Donald Trump is gone.
Top U.S. Ag Buyers
While any business tries to expand its customer base, there is always a focus on the biggest ones. It’s no different for U.S. farmers looking to sell more to a core list of countries around the world.
When you break down where the U.S. grain, oilseed, and livestock products are going around the world, the top buyers get a lot of attention.
In 2018, Mexico showed up in the top 5 biggest U.S. buyer lists for the categories of corn, soybeans, wheat, beef and beef products, pork and pork products, and poultry.
For U.S. corn exports, Japan trailed slightly behind Mexico at 600.579 million bushels, while the next three buyers’ purchases were not even half of that total.
With U.S. corn ending stocks growing, combined with more global corn production, increased exports will be needed to chew through large supplies.
For soybeans, China’s 2018 purchases of 30.646 million bushels still make it the top buyer of the U.S. oilseed product. However, the Asian country’s purchases fell considerably due to the U.S.-China tariff trade war.
For example, in 2017, China imported 116.662 million bushels of U.S. soybeans. In 2016, that total was even higher at 132.540 million bushels.
Mexico is the second-largest buyer of U.S. soybeans, but the Netherlands has made a significant jump on this list, as of late. In 2019, the U.S. soybean stockpile is projected to reach nearly 1 billion bushels by this fall. If realized, that total would be double the size of ending stocks from fall 2018, according to the USDA’s Quarterly Outlook Report released in May.
In that same report, USDA forecasted 2019 soybean exports at $17 billion, down by about a fifth from last year’s $21 billion.
Japan, the top buyer (in value) of U.S. wheat at $697 million, is also a top 5 buyer for U.S. corn, beef and beef products, pork and pork products.
Mexico and Japan are buying about the same amount of U.S. wheat. Japan is buying higher quality wheat from the U.S. compared with Mexico ($668 million). That puts Japan at the top of the list for value, not volume.
In 2018, Japan bought 727.793 million pounds, 200 million pounds more than the next biggest buyers, South Korea and Mexico.
In addition, a 2019 trade agreement between the U.S. and Japan is expected to allow for increased beef exports to the consumers in the bow-shape country in the Pacific.
In May, Japan lifted a 2005 restriction on U.S. beef exports, according to the USDA.
Regardless of age, beef products can enter Japan. Japan had barred imports of U.S. beef over 30 months old, as a result of the U.S. 2005 outbreak of so-called mad cow disease.
U.S. beef sales to Japan could increase by 7% to 10% ($200 million a year) as a result of expanded access, according to the U.S. Meat Export Federation.
Though Mexico is buying more volume of U.S. pork at 1.712 billion pounds (valued at $1.3 billion), Japan is lapping up higher quality U.S. pork and pork products totaling 869.037 million pounds ($1.6 billion).
The same is true for Canada and South Korea. The U.S. neighbor to the north is the third-largest buyer of U.S. pork and pork products in value at $765 million, but No. 4 South Korea purchased more in volume in 2018.
Top U.S. Ag Buyers
Future U.S. Buyers
“China certainly isn’t the only market. We’re working on getting your stuff sold around the world,” USDA Secretary Sonny Perdue told farmers attending this year’s Commodity Classic, a convention of corn, soybean, and wheat growers. So, where is the U.S. going in the world to get more business?
Soybean & soybean products
While Egypt, Pakistan, and Bangladesh are soybean markets that are becoming important today and are really ramping up and becoming important importers, the big market catch would be India, according to Paul Burke, U.S. Soybean Export Council (USSEC).
“The real ace out there is India. We don’t think India is going to open up its borders overnight, but it is running out of vegetable protein. As India’s economy continues to grow, consumers are eating increasing amounts of poultry and fish (aquaculture), and we believe the industry will turn to its government and say that it needs access to imported vegetable protein. India has the ability to be that leveler against the lost Chinese demand,” Burke says.
This year, a trade delegation from the Iowa, Nebraska, and Kansas Soybean Associations met with potential customers in Myanmar and Malaysia.
The group sees opportunities for supplying these emerging markets with U.S. soy meal.
3. Egypt, 4. Pakistan, 5. Nigeria, 6. Bangladesh, and a few smaller countries in Latin America are also on the radar of the USSEC.
Jim Sutter, CEO of USSEC, says the organization has made a shift in its export marketing strategy.
“In February of 2018, before the (China) tariff situation started, we had worked with the United Soybean Board to relook at our export marketing strategy. We decided to take a portion of our resources and invest that into evolving or new markets,” he says.
“Those are places where there is a large population, low per-capita protein consumption, and improving economic conditions. We think those are the markets that are going to really become future drivers of demand for global soybeans and certainly U.S. soybeans. We want to be positioned so that U.S. soy can be an important part of that move,” Sutter says.
“If we go to these countries and we use the processes that we have used in other markets – take our technical servicing, work with industries and help them produce better feed and livestock, teach them risk management, teach them how to source internationally – we think we can jump-start those markets and help them use more soy and import more soy faster than they otherwise would,” Sutter says.
Meanwhile, China is not just a big U.S. customer of soybeans; it is also seen as an important potential big buyer of U.S. corn and corn products.
“China needs U.S. ethanol and DDGs. So, this is crucial to farmers. The country already buys two thirds of U.S. soybean exports (before the tariffs). So, we desperately need beans to start going back into China, as well as corn,” says Ryan LeGrand, CEO of U.S. Grains Council.
LeGrand says Mexico has huge potential for U.S. ethanol. The Mexican government has been working to allow ethanol to be included in the fuel matrix.
“Mexico is trying to get domestic production included in that matrix, but we see a role for trade for U.S. ethanol, as well,” LeGrand says. If you look at an example like the Philippines, that country has grown its ethanol production while we export to it at the same time. That’s a model that could be replicated in Mexico. The total Mexican gasoline supplies are at about 12.5 billion gallons. So, using E10, you’re looking at over 1.2 billion gallons of ethanol potential in Mexico. “That is huge. If Mexico was to buy half of that total from us and produce the other half, there is a huge win-win for both countries,” LeGrand says.
If you want to look to Southeast Asia, Vietnam is another potential growth area for U.S. corn and corn products, LeGrand says. “It is a country that is really booming and starting to take a lot of our product."
In 2018, Vietnam, the sixth-largest buyer of U.S. agricultural products, recorded purchases of $3.99 billion vs. $2.53 billion in 2017.
Plus, last year, Vietnam became the seventh-biggest buyer of U.S. corn with purchases totaling $352 million.
U.S. corn industry experts are looking to open up the market in the continent of Africa.
“We think there’s plenty of opportunity in Africa, and maybe that is several years away. We’re actually doing a lot of the work that the council set out to do initially when we formed and that’s extension work, especially in Mexico. We were doing a lot of extension work. So we’re doing some of the similar things in East Africa by attempting to start to build demand there,” LeGrand says.