Category: Trade

China’s demand for beef is breaking records and imports have increased to unprecedented levels in recent years. Since 2010, Chinese beef imports (carcasses and muscle cuts) increased from less than $100 million to nearly $12.5 billion by 2021 (14,000% increase), making China the world’s largest beef importing country (UN Comtrade, 2022). In years past, beef was not a major protein source in China, but economic growth and exposer to western diets has increased beef awareness. Due to several factors (higher incomes, health awareness, protein shortages due to African swine fever), Chinese consumers have diversified their diets away from pork, the traditional animal protein (Muhammad et al. 2022). Beef demand is outstripping supply in China, resulting in rising imports. Consequently, U.S. beef exports to China have increased to record levels.

It was not that long ago that the Chinese government banned U.S. beef after the discovery of bovine spongiform encephalopathy (BSE) in 2003. Almost 14 years later (May 2017), the China government reopened its market to U.S. beef, but not without restrictions. In January 2020, however, the United States and China signed the Phase One Trade Agreement, where China expanded the scope of beef products imported, eliminated age restrictions on slaughtered cattle, and recognized the U.S. beef traceability system. As a result, U.S. beef exports to China significantly grew. Since 2017, U.S. beef exports to China grew from $31 million to $1.6 billion in 2021, an increase of 4,800% increase (Hanzel 2021; USDA, FAS 2022).

Figure 1 shows the volume in metric tons (MT) of U.S. beef and beef product exports to major destination markets: Japan, Mexico, South Korea, Hong Kong, Canada, Taiwan, and China. In 2017, when the Chinese market was reopened to U.S. beef, sales to China were less than 3,000 MT and a fraction of sales to other major markets. In 2021, however, China became the 4^th largest destination for U.S. beef and beef product exports (191 thousand MT), behind Japan (318 thousand MT), South Korea (277 thousand), and Mexico (201 thousand). Year-to-date exports in 2022 suggest that China will be the 3^rd leading destination, and possibly the 2^nd leading destination if this trend continues. Note that exports in 2022 to all major destinations except China have either decreased (Japan, Mexico, and Hong Kong) or remained relatively the same when compared to last year. Exports to China, however, increased to 192 thousand MT as of September 2022, a 39% increase when compared to the previous year. At this rate, U.S. beef exports to China will be on par with South Korea and Japan.

Figure 1. U.S. beef and beef product exports by major destination country: 2017-2022

References

Hanzel, M. (2021). Beef – New to China Market Product Report. 2021. Report Number: CH2021-0016. U.S. Department of Agriculture, Foreign Agricultural Service.

Muhammad, A., C. Valdes, K. DeLong, and C. Grebitus (2022) “The Rise of Beef Demand in China: How Competitive is U.S. Beef when compared to Brazil and Other Major Exporters?” Arizona Food Industry Journal, Dec. 2022 (forthcoming)

U.S. Department of Agriculture, Foreign Agricultural Service (2022). Global Agricultural Trade System (GATS). https://apps.fas.usda.gov/GATS/default.aspx

Author: Andrew Muhammad

Professor and Blasingame Chair of Excellence

amuhamm4@utk.edu

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Muhammad, Andrew . “China Emerges as a Leading Destination for U.S. Beef Exports.” Southern Ag Today 2(49.4). December 1, 2022. Permalink

The Mississippi River provides the United States with a competitive advantage in the export of bulk agricultural commodities.  This advantage in transportation costs allows U.S. commodities, including corn and soybeans, to better compete for market share with the product of other countries. Disruption of shipping on the Mississippi River can occur as a result of a variety of circumstances.  Various events, particularly hurricanes, have previously suspended barge traffic on the Lower Mississippi River. While the Army Corps of Engineers is charged with maintaining the navigability of the Lower Mississippi River, the possibility of longer-term disruptions resulting from an avulsion of the Mississippi River at the Old River Control Structure has been considered by Lazard and Kennedy (2020).

The recent drought conditions have limited the shipment of agricultural commodities on the Lower Mississippi River due to draft limitations. The Ports of South Louisiana typically service over 55,000 barge shipments and 4,000 ocean-going vessels annually. The disruption of river commerce will force producers to consider shipping commodities using more costly alternative modes of transportation. Assuming the Mississippi River to be the most cost-efficient method of transporting soybeans, other modes of transportation to meet global demands will increase total transportation costs.

The immediate impact on agricultural exports can be seen through decreased barge traffic and increased barge rates.  According to the U.S. Army Corps of Engineers, barge tows that are typically comprised of 36 barges are limited to 25 barges due to the decreased water levels (Kennedy, 2022) which significantly restricts the flow of grain to the Gulf.  In addition, the USDA’s Grain Transportation Report (2022) indicated that the St. Louis barge rate for the week of November 8, 2022 was 145 percent higher than the previous year and 128 percent higher than the 3-year average. 

As shown in Figure 1, nearly half of U.S. bulk agricultural exports flow through the Lower Mississippi River and the Ports of South Louisiana.  The highest export volumes have occurred from October through January, particularly for the New Orleans Customs District (NOCD).  The current drought conditions and resulting restrictions on barge traffic on the Lower Mississippi river will have significant implications for the U.S. agricultural sector.  In addition to other supply chain issues that have existed, increased barge rates and decreased river capacity resulting from the abnormally low Mississippi River levels come at the time for peak export opportunity based on historic export data. Depending on the duration of the current drought conditions, these factors will likely combine to put downward pressure on the domestic prices of bulk agricultural export commodities.

Figure 1. U.S. Total and New Orleans Customs District (NOCD) Bulk Agricultural Exports by Month, Five Year Average in Million Metric Tons.

References:

USDA-AMS (November 10, 2022). Grain Transportation Report, accessed online at www.ams.usda.gov/GTR on November 16, 2022.

Kennedy, M. (2022). Mississippi River Barge Movements Restricted Due to Critical Low Water Levels. Progressive Farmer, accessed online at https://www.dtnpf.com/agriculture/web/ag/blogs/market-matters-blog/blog-post/2022/10/03/mississippi-river-barge-movements on November 16, 2022.

Lazard, P.M., and P.L. Kennedy (2020). Trouble at Old River: The Impact of a Mississippi River Avulsion on U.S. Soybean Exports. Journal of Food Distribution Research, 51(3): 1-5.

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Author: P. Lynn Kennedy, Ph.D.

Crescent City Tigers Alumni Professor &

Department Head Agricultural Economics & Agribusiness

Louisiana State University and LSU AgCenter

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Photo by Justin Wilkens on Unsplash

Kennedy, P. Lynn. “Barge Traffic Restrictions on the Mississippi River and Bulk Agricultural Exports.” Southern Ag Today 2(47.4). November 17, 2022. Permalink

The United States is a world leader in pecan production totaling an estimated 115 thousand metric tons (TMT). Georgia led the country with over 40 TMT of pecans grown, despite production being 26.7 TMT lower than the previous year. New Mexico ranked closely behind growing 35.6 TMT of pecans. Georgia and New Mexico accounted for 65.5 percent of U.S. pecans in 2021. Arizona, Texas, and Oklahoma followed those two to round out the top five states for pecans grown.

In addition to being a major grower of pecans, the United States is an exporter of both in-shell and shelled pecans. In-shell exports have been leading shelled exports in terms of volume for years but have decreased each year. The largest decline occurred when China cut imported pecans from the United States from 30 TMT to 10 TMT in 2018 after additional tariffs were levied on U.S. pecans by China. Despite these additional tariffs being removed, imports have not been able to reach the same level as years prior. Mexico is currently the largest importer of U.S. shelled pecans; in 2021 Mexico represented 47.5 percent or 15.6 TMT of in-shell pecans exported from the United States. A large portion of the in-shell nuts exported to Mexico are shelled and then exported back to the United States to be packaged where they will be consumed domestically or exported one more time. Shelled pecan exports from the United States have been on the rise in recent years growing by 10 TMT since 2017. The largest importing countries for U.S. shelled pecans are Canada, the EU(primarily the Netherlands or Germany), and Mexico. These four countries account for 60.3 percent of all shelled pecans exported from the United States, or 19.3 TMT.

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Author: Landyn Young

Program Coordinator

Landyn.young@ag.tamu.edu

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Young, Landyn. “U.S. Pecan Trade“. Southern Ag Today 2(45.4). November 3, 2022. Permalink

Photo by Sara Cervera on Unsplash

The drought of 2022 in Texas has taken its toll on U.S. cotton production, with USDA forecast 13.8 million bales (mb) (or 3.7 mb lower than 2021). Lower output equals lower exports, with current forecasted exports of 12.5 mb, down 14% from the previous year (See Figure 1). That also means lower ending stocks, currently estimated at historically low levels of 2.8 mb. But the drought (and higher than average price) has not slowed exports, with roughly one-half of expected production already sold or shipped where China has been the largest destination so far this year.

USDA data show the typical inverse relationship between crop size and farm price. And even though expected farm price is below last year, if realized, would be the second highest average farm price on record. 

But there are concerns. Recent price action in the 22 and 23 December contracts have shown considerable weakness relative to earlier in the year. Recent lower prices would be expected to stimulate buying. In fact, exports do show strength. But there appears to be substantial selling pressure any time price moves up. And the market appears to be inverted with nearby prices above prices in out-month contracts suggesting current demand above future demand.

What is perplexing is the relatively low DEC23 price (currently in the mid-70 cents per pound range). That price level is insufficient to cover anticipated costs in many regions of the U.S. Also, relative to grains, the price for the DEC23 contract appears to signal fewer cotton acres next year. There is still time for prices to realign, but the market may be signaling lower anticipated cotton demand in 23 driven by higher apparel prices (and general inflation). For now, cotton is moving globally, and the US is likely to end the 22/23 marketing year with historically empty warehouses.

Figure 1. U.S. Cotton Exports and Farm Prices: 2017-2023

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Hudson, Darren. “The Drought, Exports, and Cotton Prices“. Southern Ag Today 2(43.4). October 20, 2022. Permalink

The United States has 14 free trade agreements (FTAs) across 20 countries, the majority of which are in lower- or middle-income countries. Overall, FTAs increase trade, lower prices for consumers, and provide export opportunities for producers. As such, FTAs are usually described as beneficial to both the U.S. and partner countries. However, gains from FTAs are not always shared equally. As noted in the report, developing countries might hesitate to join an FTA with a developed country if they believe that their industries are less competitive. That is, an FTA can expose firms in the developing country to more efficient producers in developed countries, resulting in decreased sales and firm closures in the developing country. The ERS report examines whether developing countries with FTAs with the United States benefited in terms of increased trade (exports) and macroeconomic indicators before and after agreement implementation. In this article, we focus solely on their results for total agricultural exports from developing countries.

Figure 1 shows the agricultural export growth rate by U.S. FTA partner, 5 years prior to and after the agreement entered into force. Note that the figure also includes developed countries (e.g., Australia, Canada) for comparison purposes. The figure shows that Mexico’s total agricultural exports were shrinking by an average of 1.5% percent in the years prior to the North American Free Trade Agreement (NAFTA) but grew by an average of 13.6% in the years following the agreement. As the figure shows, many developing countries experienced relatively faster growth in total agricultural exports in the post-FTA period (Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Oman, Panama, Peru, and Singapore). However, several countries experienced slowing agricultural export growth (Morocco and Nicaragua), which could also indicate that resources in these countries were diverted to be used more efficiently in other sectors of the economy. Overall, the share of U.S. imports from developing FTA partner countries rose from 21.6 percent in 1989 to 31.4 percent in 2020.

Figure 1. Total agricultural export growth by U.S. free trade agreement (FTA) partner, 5 years pre- and post-agreement.

For more information:

Ajewole, Kayode, Jayson Beckman, Adam Gerval, William Johnson, Stephen Morgan, and Ethan Sabala. September 2022. Do Free Trade Agreements Benefit Developing Countries? An Examination of U.S. Agreements. Report Number EIB-240. U.S. Department of Agriculture, Economic Research Service. https://www.ers.usda.gov/publications/pub-details?pubid=104854

Muhammad, Andrew. “ERS Report Shows that U.S. Free Trade Agreements (FTAs) Benefit Developing Countries“. Southern Ag Today 2(41.4). October 6, 2022. Permalink