Record exports, changing beef marketplace

Jul 22, 2011
by DTN

Highly optimistic for the short term, cautiously so for the longer term, was the mood among the several hundred bankers, agribusiness executives and farmers attending a symposium entitled “Recognizing Risk in Global Agriculture” at the Federal Reserve Bank of Kansas City.

The rising demand for grains—particularly corn and soybeans, due to the growth in global demand for and production of animal protein—is central to the optimism.

The meeting kicked off with USDA’s chief economist, Joe Glauber, who set that tone when discussing U.S. agricultural exports. Exports are projected to be a record $137 billion in fiscal year 2011, though in inflation-adjusted terms, they fall a touch short of 2008.

He noted that the share of U.S. production that is exported has shifted in various crops: Exports of grains and our market share have dropped for all crops with the exception of cotton. “We no longer have surplus supplies going out as aid,” Glauber explained. “And countries in the Black Sea region, South America and India are becoming stronger competitors in grain exports. U.S. share of cotton exports has grown despite significant competition from India and Brazil where Bt cotton adoption has boosted production.”

Although corn exports are up, production and domestic use have risen faster than exports, causing exports to equal an expected 15 percent of production in 2011-2020, compared with 18 percent during 2000-2010 and a peak average of 26 percent during 1980-1999. Wheat exports as a percent of production also peaked in 1980-1989 at 59 percent and are projected at 46 percent for the decade ahead.

Exports of soybeans and cotton, on the other hand, are on a climb. The U.S. will export 47 percent of soybeans produced in the next decade, about 10 percentage points higher than the 34 percent to 39 percent averages seen in the decades since 1960. More than 80 percent of U.S. cotton will be processed abroad. “China’s imports are the driving factors in demand for both of those crops,” Glauber said.

“Livestock is seeing a dramatic growth in the percent exported,” Glauber said. “Even through the 1990s, most meat was consumed domestically, with only 7 percent of beef, 4 percent of pork and 3 percent of broilers exported. In the decade ahead, we expect 10 percent of beef, 22 percent of pork and 17 percent of broilers to be exported.”

Although world trade has increased modestly for most crops, the real growth has been in soybeans, which have tripled since 1990, driven by strong Asian demand.

New trading partners

“The big story is the change in destinations,” Glauber said. In the 1960s, our biggest trading partners were Europe and Japan. Now, China is No. 1, and Canada, Mexico and Japan follow. Europe is falling in importance.

China now takes 77 percent of U.S. bulk commodity exports. “It clearly has a lot of potential, but the risk is that its imports are heavily weighted to two or three products: China accounts for 60 percent of world soybean trade and 40 percent of cotton. China and India together represent a third of world soyoil exports, and China and other Asian countries take 80 percent of cotton exports,” he said. “Corn exports to China make headlines, but the fact is, it only accounts for 2 percent of world trade in corn.”

Glauber said barriers to trade remain a key uncertainty for U.S. ag exports, especially meats. “Free trade agreements, the outcome of the Doha negotiations—now deadlocked mainly due to non-agricultural issues—and disputes can have large impacts and are not easily solved. We can’t afford to stay out of trade agreements or we will fall behind.”

Global supply response

American farmers have a long history of producing themselves out of prosperity. With the strong prices seen in recent years, it will not be just U.S. producers who respond, but global producers.

“It is hard to bet against 60 years of declining real prices,” Glauber said. “Even with a conservative 2-bushels-an-acre growth in corn yields, over time, stocks will build. However, even with the added stocks USDA found in its June 30 report, it will take two to three years to rebuild inventory.”

One thing different from the 1970’s grain export boom and price rise is that 35 million acres are in the Conservation Reserve Program (CRP), he noted. “Much of that is wheat land—marginal wheat land—and it won’t come out easily.” Glauber said we need to bring the more productive land out of the CRP, while keeping the more environmentally sensitive land in.

David Fischhoff, vice president of technology strategy and development at Monsanto, pointed out that globally, additional arable land is relatively restricted and the world is already feeling pressure on water availability. But he believes it is a realistic goal to double average yields in major crops (corn and soybeans) by 2030 from the 2000 level. “That means corn moving from an average 150 bushels to 300 bushels,” he said. “A doubling in 30 years is not unprecedented. We did so in the same time frame beginning in 1975—from 70 bushels to 150 bushels. And other places in the world have more headroom for growth because their yields don’t approach those in the U.S.”

Fischhoff said he believes plant breeding, field practices, such as boosting plant population, and genetic engineering will each account for about a third of the improvements, with biotech increasing its share of yield improvement beginning 2020. “Biotech has been around for 15 years and basically has delivered two traits—herbicide tolerance and insect resistance—in a limited number of crops. New applications will grow.”

Risks to high prices

Glauber reminded that production ultimately catches up with demand in agriculture. Another concern is any loss of momentum in world growth—especially in developing countries. Then there’s the price of oil. Asked whether current prices are the “new normal” or “new plateau,” Glauber quipped: “Is $100/ barrel the new normal? If petroleum stays where it is, ag prices will stay high, too. We expect some drop off in ag prices but still at relatively high levels historically.” — DTN