Category: Trade

Trade is very important to production agriculture in the United States. Over the last 12 years, 2011 to 2022, agricultural exports have accounted for over one-third of US gross farm income, 33.9 percent (USDA ERS and FAS).  US agricultural exports have experienced a 7-year expansion run from 2015 to 2022, going from $137.2 billion to $195.9 billion. This increase of US agricultural exports was accentuated during the Covid-19 pandemic years as total exports increased by 38.8 percent in value and 8.1 percent in volume between 2019 and 2022 (Tables 1 and 2).  The rather large difference between value and volume increases shows that there was a price increase in most of the commodities which can be attributed partially to an increase in quantity demanded of US agricultural products, but also to inflation experienced worldwide as well as the Russia-Ukraine war. The largest increase in value of the top five US agricultural exports from 2019 to 2022 are oilseeds and products, grain and feeds, and dairy and products with 65.2, 64.5, and 61.4 percent increases, respectively.  Moreover, in terms of volume, grains and feeds, poultry and products, and oilseeds and products have the largest increase with 12.7, 6.6, and 4.6 percent respectively.

Figure 1.  Value of US Agricultural Exports, Billion Dollars

Table 1. Value of U.S. Agricultural Exports, Thousand Dollars

Table 2. Volume of U.S. Agricultural Exports, Metric Tons

The latest USDA Outlook for U.S. Agricultural Trade report (August 2023) forecasted exports for 2023 at $177.5 billion, down $3.5 billion from the May forecast largely due to decreases in corn, wheat and tree nuts exports.  The year-over-year exports from January to July show an overall decrease of 11.5 percent in value and 17.7 percent decrease in volume (Tables 1 and 2).  In both, value and volume, the largest decreases are in grains and feeds with 22.6 and 27.5 percent, respectively.  The main reason for this decline is competition from Brazil, EU, and Russia.   Moreover, forecasted exports for 2024 are expected to be $172 billion, $5.5 billion below 2023, and $23.9 billion below 2022 exports.

References

U.S. Department of Agriculture (USDA).  “Outlook for U.S. Agricultural Trade: August 2023.”  AES-125, August 31, 2023. https://www.ers.usda.gov/webdocs/outlooks/107311/aes-125.pdf?v=1152.5

According to the U.S. Department of Agriculture (USDA, 2023), U.S. producers shipped nearly $6.0 billion in poultry meat and related products (excluding eggs) to over 130 countries in 2022. China has emerged as the second largest destination for U.S. poultry exports, increasing from only $10 million in 2019 to a record $1.1 billion in 2022. This is a remarkable increase of more than 10,000% in just 4 years. Recall that China banned all U.S. poultry in January 2015 due to a highly pathogenic avian influenza (HPAI) (i.e., bird flu) outbreak in December 2014. Despite the U.S. being free of the disease by August 2017, the ban was not lifted until November 2019 (USDA, 2019). Since that time, however, the recovery of U.S. poultry in the Chinese market has been phenomenal. What is interesting is that this recovery has been driven by one product, frozen chicken feet (or paws), which are apparently preferred by Chinese consumers for their unique large size and consistent high quality (Baych, 2022). In 2022, frozen chicken feet accounted for more than 85% of all U.S. poultry exported to China.

Figure 1 shows China’s frozen chicken feet imports from all major supplying countries. In 2010, frozen chicken feet imports in China were $571 million, and averaged only $350 million annually from 2010 to 2018. Since that time, however, China’s frozen chicken feet imports increased to $2.6 billion by 2022, primarily driven by imports from the U.S. In 2022, the U.S. accounted for 43% of China’s frozen chicken feet imports, followed by Brazil (20%), Russia (11%), Argentina (5%), and Chile (3%).

Unfortunately, recent bans due to HPAI outbreaks in 2022 are limiting U.S. exports from certain states in 2023. This is occurring at a time when the Chinese are paying significantly more for imported frozen chicken feet. For example, import prices for frozen chicken feet from the U.S. were around $1.00/kg in 2014. In 2023, U.S. prices averaged between $5.00kg and $6.00/kg. Current restrictions are hurting overall U.S. sales to China and appears to be benefiting Brazil and Russia. As of June 2023, U.S. frozen chicken feet sales to China were down by 35% in terms of value and 51% in terms of volume. However, imports from Brazil and Russia were up, particularly in terms of value by 77% and 42%, respectively (See Table 1). The lifting of the HPAI ban in 2019 and the enforcing of bans on certain states in 2023 have given and taken away, respectively.

Figure 1. China’s Frozen Chicken Feet Imports by Country of Origin: 2010-2023

Table 1. China’s Frozen Chicken Feet Imports from Brazil, Russia, and the United States: 2022 and 2023 Year-to-Date (January-June) Comparisons

Jan-June 2022	Jan-June 2023	% Change
	Brazil
$198.3 million	$351.8 million	77.4%
81.9 TMT	86.6 TMT	5.7%
	Russia
$106.4 million	$150.9 million	41.8%
37.4 TMT	39.1 TMT	4.4%
	United States
$550.4 million	$358.3 million	-34.9%
133.7 TMT	65.2 TMT	-51.2%

References

Baych, A. 2022. Poultry and Products Annual Country: People’s Republic of China. USDA GAIN Report Number: CH2022-0100. Foreign Agricultural Service, Washington, DC.

U.S. Department of Agriculture (USDA). 2019. American Poultry Farmers Regain Access to China. USDA Press Release No. 0176.19. https://www.usda.gov/media/press-releases/2019/11/14/american-poultry-farmers-regain-access-china

U.S. Department of Agriculture (USDA). 2023. Global Agricultural Trade System (GATS). Foreign Agricultural Service, Washington, DC.

The ongoing conflict between Russia and Ukraine, which began in February 2022, has had substantial humanitarian and economic implications. Among these repercussions is the disruption of trade, especially in agricultural markets. Ukraine’s grain and oilseed exports contracted by around 80% at the onset of the conflict. This has led to notable price fluctuations, particularly for crops like wheat and corn. For instance, wheat futures prices increased by up to 35% in response to the armed conflict. Despite these market changes, the price increases have been less significant than initially anticipated. To facilitate the movement of agricultural products, the European Union established the EU Solidarity Lanes in May 2022. Additionally, the Black Sea Grain Initiative was established with the support of Turkey and the United Nations to alleviate the challenges of blocked Black Sea ports due to the conflict. 

Research into market reactions to major events is extensive, but fewer studies have examined how conflicts impact crop prices. Some research on this conflict suggests that crop prices did rise, but not due to overreactions. Moreover, the initiatives to improve transportation and unblock ports had limited influence on traders’ perceptions of the market. The price of wheat was more affected than corn, indicating concerns about broader disruptions in Black Sea shipments. Interestingly, other crops like soybeans responded less to the conflict or the port unblocking initiative.

Figure 1 shows how the futures price index for select grains and oilseeds responded weeks after the invasion and when the Black Sea Grain Initiative was established. The results in panel (a) show that within the initial nine weeks of the conflict, future prices of agricultural crops were about 16% higher compared to a hypothetical scenario without the conflict. As seen in panel (b), after the introduction of alternative transportation routes, the futures price index experienced a gradual decline. This suggests that the transportation initiative had a positive impact by reducing market uncertainty. However, the broader market sentiment was not significantly altered by the Black Sea Grain Initiative, and prices did not decrease further. A similar pattern is seen for the grain deal renewal in the Fall of 2022. These findings are significant for southern agricultural producers involved in the decision-making and trading of these commodities, highlighting the complex dynamics of market responses to geopolitical events and mitigation efforts.

Figure 1: Agricultural Commodity Futures Market Response to the Russia-Ukraine War and the Black Sea Grain Initiative.

Learn More

Carter, C. A., & Steinbach, S. (2023). “Did Grain Futures Prices Overreact to the Russia-Ukraine War?” MPRA Paper No. 118248. Available at: https://mpra.ub.uni-muenchen.de/id/eprint/118248.

Goyal, R., & Steinbach, S. (2023). Agricultural Commodity Markets in the Wake of the Black Sea Grain Initiative. Economics Letters, 111297. Available at: https://doi.org/10.1016/j.econlet.2023.111297.

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Goyal, Raghav, and Snadro Steinbach. “Agricultural Commodity Markets Navigate Uncharted Waters Amidst Russia-Ukraine Conflict.” Southern Ag Today 3(34.4). August 24, 2023. Permalink

Ribera (2023) showed Brazil challenging the U.S. as the top corn exporter. Here, I explore this competition dynamic a little further. Figure 1 shows that most U.S. and Brazilian exports occur at different times of the year. U.S. corn predominates in the first half of the year and Brazilian corn in the second half. In the soybean market, the opposite occurs. I added soybean to the analysis because Brazil has two corn crop seasons yearly. The first one competes with soybeans for land.  

Figure 1 – Corn and Soybean Exports: U.S. vs. Brazil

Figure 2 – Corn and Soybean Prices

Sources for Fig.1 and 2: USDA/FAS-GATS (2023) provides the U.S. value and volume. MAPA-Agrostat (2023) provides the Brazilian value and volume. Prices are the ratio of value over volume. The bars show the harvest season for each crop and country, according to USDA/FAS -IPAD (2023). Green bars correspond to harvest season in Brazil. Red bars account for harvest season in the U.S. For Brazilian corn, the light green bar indicates the first crop, and dark green the second crop.  

Companhia Nacional de Abastecimento CONAB (2023) estimated 317.6 M. tons of all grain produced in Brazil for the 2022/2023 crop season. Soybeans and corn make up 88.9% of this total. However, the static storage capacity is only 192.4 M. tons. As a result, there is a total deficit of 125.2 M. tons. Figure 3 shows corn and soybean surpassing the static storage capacity. Indeed, the installed capacity can handle only 68% of the current year’s soybean and corn production.

Figure 3 – Static Storage Capacity versus Soybean and Corn Production

The storage capacity geographical distribution could be more convenient. The Midwest states, the leading producers, can store approximately 50% of the soybean and corn they harvest. Furthermore, only 15.5% of static storage capacity is within farms. As a result, most farmers need to sell soybeans or corn even if prices are not attractive. This intensified selling increases the downward pressure on prices. Such behavior may help explain the price differences in Figure 2. So, the lack of storage capacity may lead Brazil to a pyrrhic victory – champion of volume, but with lower prices.

References

CONAB (2023). Retrieved from: https://www.conab.gov.br/

MAPA-Agrostat (2023). Retrieved from: https://indicadores.agricultura.gov.br/agrostat/index.htm

Ribera, Luis. “Brazil Challenging U.S. Corn Export Top Spot.” Southern Ag Today 3(4.4). January 26, 2023.

USDA/FAS-GATS (2023). Retrieved from: https://apps.fas.usda.gov/gats/default.aspxUSDA/FAS -IPAD (2023). Retrieved from: https://ipad.fas.usda.gov/ogamaps/cropcalendar.aspx

On July 20^th, 2023, the Government of India announced the prohibition of exports of white non-basmati rice (semi-milled or whole milled, whether or not polished or glazed: other; HS 10063090) effective immediately. This measure follows the implementation of a 20% export tariff on non-basmati white rice last September. Exports of basmati (aromatic) and parboiled rice are not affected.

The measure is expected to have a significant impact on the global rice market given that India is the largest exporter of rice. In the last two marketing years (2021/22 and 2022/23) India exported an average of 21.8 million metric tons or almost 40% of global rice exports. Figure 1 shows India’s rice export breakdown by category. The export ban affects 5.8 million metric tons or 27% of the rice exported by India, most of which is exported to Africa. The countries most directly affected by the measure are Madagascar, Benin, and Nepal because India’s white non-basmati rice is the bulk of their imports. At this point, it is safe to say no other single country (except maybe China?) could step up and supply that volume to balance the market. 

Figure 1. Share of India’s rice exports in the last two marketing years by category.

The export restriction comes on top of rising global rice prices. According to FAO, since June 2022 the all rice price index and the Indica (long-grain) index, which corresponds to white non-basmati rice, increased 14% and 16%, respectively. Export quotes for India’s Indica rice increased sharply from U.S. $ 355/ton a year ago to U.S. $495/ton in mid-July (Creed Rice Market Report). 

The export ban is expected to put upward pressure on rice prices, which can benefit the U.S. long-grain rice industry. Given current market conditions, U.S. long-grain rice is not competitive vis-à-vis Asian rice, the export ban could help reduce the price gap and increase the opportunities for U.S. rice. Nevertheless, the main challenge for the southern U.S. rice industry remains Mercosur, primarily Brazil.

Finally, it is important to acknowledge that the export ban could have severe food security implications, primarily among segments of the population that rely on rice as an affordable source of calories. This potential consequence of the measure is likely to catch the attention of the broader public in the coming months.     

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Durand-Morat, Alvaro. “Shaking the Global Rice Market: India Bans Exports of White Non-Basmati Rice.” Southern Ag Today 3(30.4). July 27, 2023. Permalink