U.S. food prices insulated from warfare in Ukraine – Vilsack
The Russian attack overnight on Ukraine will have a muted effect, if any, on U.S. food prices, said Agriculture Secretary Tom Vilsack on Thursday. “We have tremendous (domestic) production capacity,” Vilsack told reporters attending USDA’s annual Outlook Forum.
The Agriculture Department said farm income would be far above average this year, with mammoth corn and soybean crops on the horizon, and exports would be the highest ever. But the projections were drafted before Moscow invaded Ukraine, upsetting global markets. Wheat prices jumped by 50¢, the daily limit, at U.S. futures exchanges following the attack.
“From the U.S. perspective ... I don’t foresee a circumstance where American consumers on the food side are necessarily going to impact and see the kind of impact and effect that the European consumers will see,” said Vilsack during a video news conference.
Vilsack and USDA chief economist Seth Meyer said it was too early to hypothesize the longer term results of armed conflict in Ukraine.
Russia and Ukraine are major wheat exporters and Ukraine is a significant corn exporter. Russia is the world’s largest exporter of fertilizer. The United States is the world’s largest agricultural exporter. All the same, U.S. commodity prices rise and fall with the global tide. However, the farm share of the food dollar is small – less than 15¢, according to USDA – so the effect of rising commodity prices is diluted by the expenses of processing, transporting, and selling food.
“I think we in the United States are fortunate. We have tremendous production capacity,” said Vilsack, before pointing to Biden administration efforts to improve infrastructure and cool off food price inflation.
As part of the Outlook Forum, the USDA forecast farm exports at a record $183.5 billion this fiscal year, an increase of $11 billion from the mark set last year. Mexico, with a surging appetite for corn, soybeans, pork, and dairy, would displace Canada as the No. 2 customer behind China.
“Clearly, China has been one of the drivers in improvements in the trade picture. Another way to read this is our traditional trading partners have come back into the market,” said Meyer. Vilsack echoed Meyer in saying the United States should diversify its export flow. “We don’t want to be dependent on any market,” said Vilsack.
U.S. ag exports soared following the de-escalation of the Sino-U.S. trade war in 2020. Trade relations between the countries increasingly are seen as a rivalry rather than a partnership.
Mexico, China, Canada, and Japan will account for most of the growth in exports this year, said the USDA. China would buy a record $36 billion, an increase of $2.6 billion from last year, but Mexico would have the largest increase – $3.1 billion, for a total of $27 billion. Canada would buy $26 billion, a $2 billion increase, and Japan $14.8 billion, up by $1.2 billion.
Soybeans, the longtime star of ag exports, were forecast for $31.1 billion in sales, thanks to strong prices and smaller global supplies.
U.S. agricultural imports also would grow rapidly this year, up nearly 6%, to $172.5 billion, said the USDA. “Mexico is expected to remain the largest foreign supplier of agricultural goods to the United States, with Canada expected to remain the second-largest supplier just ahead of the EU. Mexico’s sales are forecast to be $39.4 billion ... due to increases in expected imports of produce and distilled spirits.” While agriculture trade would show an $11 billion surplus this year, USDA economists say the nation will become a net importer of food in the long run.
High input costs will dampen corn plantings this year, said USDA analysts. With normal weather, farmers will plant 92 million acres of corn, a drop of 1.5% from 2021, but harvest a record 15.24 billion bushels, thanks to high yields, they said. Soybean plantings would rise by 1%, to 88 million acres, and a largest-ever harvest of 4.49 billion bushels. Season-average prices were forecast at $5 a bushel for corn, down 45¢ from 2021/22, and $12.75 a bushel for soybeans, down by 25¢.