Category: Trade

The outcome of the upcoming presidential election could reshape U.S. trade policy, directly impacting Southern U.S. agriculture. With its dependence on exporting commodities like soybeans, cotton, and poultry, the region faces uncertainty as potential policy shifts loom. Historically, Southern agriculture has been sensitive to changes in trade policies, as seen during recent trade conflicts like the U.S.-China trade war, which led to substantial income losses for farmers and ranchers across the region. Understanding how those new trade policy scenarios, as summarized in Table 1, might unfold is crucial for preparing Southern farmers and agricultural businesses for a turbulent period in global trade.

One possible scenario comes from the Biden administration’s 2024 decision to impose a 20% (trade-weighted) tariff on Chinese electric vehicles and other critical sectors. In response, we could see commodity-specific tit-for-tat trade retaliation from China in 2025, potentially involving a 20% tariff on U.S. agricultural exports. While this scenario is aggressive, it would likely remain a bilateral conflict between the U.S. and China, much like the 2018-2019 trade dispute that significantly impacted U.S. farmers, particularly those in the Southern states.

A more extreme scenario would be for the U.S. to impose a 60% tariff on Chinese goods and a 10% tariff on imports from all other countries. Those who believe that taking a protectionist stance on trade is the best way to increase U.S. jobs have suggested this trade policy approach. However, such a move would almost certainly provoke a strong reaction, with China likely imposing a 60% tariff on U.S. agricultural products and other countries also raising their tariffs on U.S. goods by 10%. The U.S. South’s heavy reliance on foreign markets could create severe disruptions in global trade, with the region’s agriculture being particularly hit.

A third scenario could involve the U.S. Congress revoking China’s Permanent Normal Trade Relations (PNTR) status, which some lawmakers believe is necessary for national security and economic reasons. This could result in a 9.5% increase in tariffs on Chinese goods. In this scenario, China is expected to respond with an equivalent tariff on U.S. agricultural exports. Although this scenario focuses more on the U.S.-China relationship, it presents significant risks for Southern agriculture.

Table 2 presents each scenario’s projected export losses. Southern agriculture is closely tied to global markets, with key exports like soybeans, cotton, poultry, and livestock playing a pivotal role. Take soybeans, for example. This crop is central to agriculture in Arkansas, Mississippi, and Kentucky. Under the first scenario, we estimate soybean exports could fall by 32.6%, or about $1.2 billion. The third scenario presents a more moderate decline of 15.5%, equating to a loss of approximately $0.6 billion. If the second, more extreme scenario were to unfold, soybean exports could drop by a staggering 67.6%, which translates to a loss of $2.4 billion. Such a decline would likely lead to excess soybeans in domestic markets, pushing prices down and putting financial pressure on farmers.

Cotton, another critical crop for Southern states like Texas, Georgia, and Arkansas, would also face serious challenges. Under the first scenario, cotton exports could decrease by 8.4%, leading to a $0.5 billion loss. The third scenario predicts a 4% decrease, amounting to a loss of around $0.2 billion. The drop could be as high as 38.8% in the second scenario, or $ 2.1 billion. These losses could have ripple effects throughout the regional economy, squeezing farm incomes and adding financial stress. The poultry industry, vital to Georgia, North Carolina, and Alabama, would not be spared. In the first scenario, poultry exports might shrink by 8.8%, while in the second scenario, the decrease could reach 38.2%. This would amount to billions in lost revenue, hitting rural economies hard.

Potential trade policy scenarios following the U.S. presidential election could considerably affect Southern U.S. agriculture. While the exact outcomes will depend on the policies that are ultimately implemented, the risks to the Southern agricultural economy are clear. By diversifying export markets, investing in value-added agriculture, strengthening domestic markets, and advocating for supportive trade-relief programs, Southern U.S. states could better position themselves to deal with the challenges posed by these potential shifts in trade policy. Southern agriculture must be prepared and adaptable in the face of these uncertainties, ensuring it can thrive in an increasingly competitive global market disrupted by protectionist trade policies.

Learn More

Kim, D., Steinbach, S., Yildirim, Y., & Zurita, C. (2024). Understanding Trade Strategy Impacts on Soybean Exports and Farm Income in North Dakota. CAPTS White Paper 2024-01. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4920301.

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Goyal, Raghav, Sandro Steinbach, Yasin Yildirim, and Carlos Zurita. “Trade Policy Scenarios after the U.S. Presidential Election and What They Could Mean for Southern U.S. Agriculture.” Southern Ag Today 4(44.4). October 31, 2024. Permalink

In previous Southern Ag Today articles, the rising agricultural trade deficit was reported.  The latest USDA Outlook for U.S. Agricultural Trade report (August), forecast a $30.5 billion trade deficit for FY 2024 with exports at $173.5 billion and imports at $204 billion (Kenner et al., 2024).  Moreover, for FY 2025, USDA forecast an even larger trade deficit at $42.5 billion with exports at $169.5 billion and imports at $212 billion. As mentioned in previous articles, when we measure trade in volume the U.S. enjoys a 3.2 export to import ratio over the last 10 years, meaning that the U.S. exports more than three times the volume that we import.  The reason is that we tend to export products that are sold in bulk, such as soybeans, corn and wheat and we import more high value agricultural and food products such as beer, wine, spirits and fresh fruits and vegetables.

One of the main contributors to the loss of competitiveness of U.S. agricultural products in the international arena is the increase of cost of production. Figure 1 shows how the cost of farm inputs has risen in recent years. In 2018, U.S. farmers spent a total of $354 billion on inputs, however, by 2023 farmers spent $481.9 billion, an increase of 36 percent. Southern states (categorized by the USDA to include Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, and South Carolina) together saw farm inputs rise 37.65% over this time. The inputs purchased by these seven states accounted for 10.4 percent of the total for the United States.  Texas, grouped into the Plains region, accounted for 6.35 percent of the U.S. total. Of the southern states, Florida experienced the highest rise in cost of inputs during this time, increasing 58.65 percent from 2018 to 2023. 

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Ribera, Luis, and Landyn Young. “Increase in Cost of Production Contributing to Trade Deficit.” Southern Ag Today 4(42.4). October 17, 2024. Permalink

In Part 1, we examined the importance of international markets for cotton growers amid a significant decline in U.S. cotton processing capacity. Since 1995, U.S. cotton mill use has plummeted by 84%, reaching 1.85 M bales in the 2023 crop season—the lowest level in over a century. During this period, Brazil’s production surged, enabling it to surpass the U.S. in cotton exports. In this second part, we briefly analyze yield and production trends in both countries, exploring their potential impact on future exports.

After the World Trade Organization (WTO) Agreement on Textiles and Clothing (ATC) came into effect in 1995, U.S. cotton production averaged 17.1 million bales annually. For the 2024/25 crop season, the USDA estimates production at 14.5 million bales (Fig. 1), reflecting an improvement over the past two years. However, untimely rains have hindered optimal crop development in Texas, the largest cotton-producing state. In 2023, Brazil outpaced the U.S. in cotton production (Fig. 1), with USDA forecasting a harvest of 16.7 million bales for the 2024/25 crop season – nearly nine times the amount produced in 1995. This growth in Brazil is primarily due to land expansion and yield improvements.

Figure 1 – Cotton Production in the U.S. and Brazil: 1960 – 2024. 

Brazil’s cotton acreage has expanded by 71% since 1995. Most Brazilian cotton is grown as a double crop, following soybean harvest. Cotton competes for land with corn, allowing farmers to benefit from fiber-food diversification. This year, low corn prices prompted growers to shift more acreage to cotton, resulting in a 16.8% increase in planted area. 

Post-ATC, Brazil began outperforming the U.S. in cotton yield. Enhanced farming practices and the introduction of transgenic cotton seeds in the late 2000s significantly boosted productivity. Brazilian yield soared from 323.9 lbs./ac in 1995 to 1,705 lbs./ac in 2023 – a fivefold increase. In contrast, U.S. cotton yields have plateaued around 846.5 lbs./ac since 2004 (Fig. 2), a notable achievement considering the challenging weather conditions faced by U.S. producers.  

Figure 2 – U.S. and Brazil Cotton Yields. 

Brazil’s soil and climate favor cotton expansion, signaling a promising export future. However, the profitability of second-season corn often influences farmers’ decisions to plant cotton. Expanding cotton beyond traditional areas is limited by the need for specialized infrastructure, such as cotton gins and storage facilities. Moreover, cotton demands more sophisticated technology and a longer growing season than corn, adding climatic risk to production. Despite these challenges, Brazil has made notable progress. In 2023, the country achieved a milestone by exporting cotton to Egypt, showcasing the enhanced quality of its fiber. Additionally, a new export route through the port of Salvador, strategically closer to the key cotton region of western Bahia, was established to alleviate bottlenecks at Santos, Brazil’s main export hub.

Brazil is poised to contend for the top position in global cotton sales. Preliminary analysis indicates that cotton remains more profitable than corn in the country. Despite narrowing margins for Brazilian cotton producers, a modest increase in acreage is expected for the next cycle. Cotton prices on ICE Futures in New York have fallen by 20% since February, now trading around $0.70 per pound. Meanwhile, the dollar’s 12% appreciation against the Brazilian real has bolstered Brazil’s price competitiveness, mitigating the impact of falling cotton prices in the country. Although recent droughts in the U.S. have curtailed production, Brazil’s surging output has halted the effects on global prices. Monitoring Brazil’s cotton market provides valuable insights into global price trends and affects marketing strategies for Southern U.S. growers.

References. 

FAS/USDA/PSD. PSD Data Sets. Retrieved from: https://apps.fas.usda.gov/psdonline/app/index.html#/app/home[Accessed September 18, 2024].

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Cali, Yuri, and Rachel Judd. “Shifting Winds: The Changing Landscape of Cotton Production and Exports in the U.S. and Brazil (Part 2).” Southern Ag Today 4(40.4). October 3, 2024. Permalink

In previous Southern Ag Today articles, we reported on the rising U.S. agricultural trade deficit as forecasted by the U.S. Department of Agriculture (USDA). Last month (August), the USDA released new forecasts for the fiscal year (FY) 2025, indicating an even larger deficit than FY 2024. According to the USDA, the U.S. will conclude this fiscal year with agricultural exports at $173.5 billion and imports at $204.0 billion, resulting in a negative trade balance of $30.5 billion. For FY 2025, the USDA forecasts agricultural exports at $169.5 billion and imports at $212.0 billion. If these projections hold true, the continued decrease in exports and increase in imports will cause the U.S. agricultural trade deficit to rise to a record $42.5 billion (Kenner et al., 2024). As mentioned in previous articles, this is not necessarily a concern because we import high-value agricultural and food products that are very different from the bulk commodities that dominate U.S. exports. For instance, U.S. imports of beer, wine, and spirits accounted for more than half of this deficit in recent years (Muhammad and Hossen, 2024b). That said, the continued decline in U.S. agricultural exports should be a concern.

The differences between the latest FY 2024 and FY 2025 forecasts are reported in Table 1. Soybeans account for the largest expected decline at $1.5 billion, a decrease of over 6%. Beef and veal exports are expected to be lower by $1 billion, nearly an 11% decline. Other noted declines include cotton (-$900 million, -17%), soybean meal (-$700 million, -10%), and sorghum (-$400 million, -27%). While there are projected declines for several major commodities, some sectors are projected to increase, albeit the projected increases are smaller by comparison.

The shift from historical trade surpluses presents both challenges and opportunities for U.S. agricultural policy, with an increased urgency to address declining export sales. To mitigate the impact of declining exports, particularly to China, U.S. policymakers must focus on diversifying export markets. Exports to China have declined by 30.9% between 2021 and 2023 (Muhammad and Hossen, 2024a), and they are projected to fall further to $24.0 billion in FY 2025 from $27.0 billion in FY 2024. There is an urgent need to seek new markets in regions such as Southeast Asia, Africa, and Latin America. Negotiating new trade agreements with these emerging markets could open opportunities for U.S. agricultural products. Additionally, providing export promotion assistance and investing in market research will be essential in identifying and capitalizing on opportunities in untapped markets.

Table 1. Difference in USDA exports forecasts: FY 2024 versus FY 2025

For more information:

Kenner, Bart, Hui Jiang, James Kaufman, and Angelica Williams. (2024). Outlook for U.S. Agricultural Trade: August 2024. Report AES-129. U.S. Department of Agriculture. https://www.ers.usda.gov/publications/pub-details/?pubid=109831

Muhammad, Andrew, and Md Deluair Hossen. (2024a). “Understanding the Growing U.S. Agricultural Trade Deficit: The Fall in Exports.” Southern Ag Today 4(26.4). June 27.

Muhammad, Andrew, and Md Deluair Hossen. (2024b). “Understanding the Growing U.S. Agricultural Trade Deficit (Part 2): What’s Happening with Imports?” Southern Ag Today 4(30.4). July 25.

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Hossen, Md Deluair, and Andrew Muhammad. “USDA Projects a Widening Trade Deficit for Fiscal Year 2025.” Southern Ag Today 4(38.4). September 19, 2024. Permalink

The United States has led world cotton exports since the 1980s. After the 1990s, the U.S. shipped most of its cotton production to foreign markets. As domestic processing capacity shrank,  U.S. cotton farmers became more dependent on international markets. Brazil expanded cotton production and exports in this context, challenging the U.S. leadership in cotton. We briefly contrast the U.S. and Brazilian cotton markets in two parts: the first highlights trade and the second production.  

The importance of international markets for U.S. cotton farmers has grown in recent decades. In 1995, the World Trade Organization (WTO) implemented the Agreement on Textiles and Clothing (ATC). The ATC gradually phased out quotas on textile imports over ten years. Since the ATC’s implementation, U.S. exports jumped from 37% to 72% of total supply in 2023, underscoring the U.S.’s competitiveness overseas. Brazil exhibited a similar trajectory, reaching 66% of its total supply exported in 2023. Total supply includes beginning stocks, production, and imports. Figure 1 illustrates the upward trend of export relevance to cotton farmers. 

Figure 1 – Cotton Exports as a Percentage of Total Supply. 

Brazil surpassed U.S. cotton exports in 2023. The U.S. exported 11.75 M bales in the 2023 crop season, and Brazil shipped 12.1 M bales, leading cotton exports for the first time (USDA, 2024). Figure 2 shows the growth of Brazilian exports while U.S. exports stagnated. Factors such as Asian demand, favorable exchange rates, government support, and competitive prices fueled Brazilian exports. The U.S.-China trade war (2018-19) further shifted trade dynamics. 

Figure 2 – U.S. and Brazil Cotton Exports. 

Before the U.S.-China trade war, China ranked third among the largest importers; today, it tops the list. China now serves as the primary destination for U.S. and Brazilian cotton. According to U.N. Comtrade (2024), Brazil’s share of the Chinese market surged from 9% in 2014 to 37% in 2023, matching the U.S.^[1] From 2022 to 2023, Brazilian cotton shipped to China jumped 49%, while U.S. exports dropped 33%. However, in the first half of 2024, the U.S. increased its exports to the Asian country by 79% compared to the same period last year. 

The continued growth of Brazil’s cotton exports will likely challenge U.S. dominance further. Understanding the surge in Brazilian supply is particularly relevant for Southern growers, which are facing prices below $0.70 per pound, less than half of the May 2022 peak. Also, modest economic growth and high interest rates have constrained consumer spending worldwide, depressing the global demand for cotton. In part 2, we will review yield and production trends and how they may shape the export outlook. 

References. 

FAS/USDA/PSD. PSD Data Sets. Retrieved from: https://apps.fas.usda.gov/psdonline/app/index.html#/app/home[Accessed August 22, 2024].

U.N. Comtrade. Trade Data. Retrieved from: https://comtradeplus.un.org/ [Accessed August 29, 2024].

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^[1]. Market share is calculated from cotton quantity. The analysis with the U.S. Comtrade Database used HS 5201 cotton (not carded or combed). 

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Cali, Yuri, and Rachel Judd. “Shifting Winds: The Changing Landscape of Cotton Production and Exports in the U.S. and Brazil (Part 1).” Southern Ag Today 4(36.4). September 5, 2024. Permalink