Category: Trade

The recent spikes in freight costs are having a significant impact on global trade. The average cost of shipping a standard large container (a 40-foot-equivalent unit) has surpassed $10,000 in recent months, more than four times higher than prices a year ago. Most of this is due to higher freight rates for routes out of China. For instance, container rates for shipments from Shanghai to New York increased from $2,500 to more than $20,000 in September 2021 (Freightos Data, 2021). To put this in context, an east coast buyer that spent $100,000 last year in freight costs when importing goods from China is now paying almost $1,000,000 in freight costs to import the same items. Given the high demand for containers out of China, there has been a shortage of containers at U.S. ports affecting exports. What does all of this mean for U.S. agricultural exports? Once consequence is that the bulk shipping rates have also increased from $1,000 to over $5,000 in October (now around $3,400) (Trading Economics, 2021), which affects commodities like soybeans and corn. 

As we begin our research on the effects of shipping rates on U.S. agricultural exports, it is important to first understand the importance of different modes of shipping for U.S. agriculture. The figure shows the share (volume) of U.S. exports across product categories by different shipping modes (bulk, container, and air). To be expected, bulk commodities like wheat, corn, sorghum, and soybeans are most reliant on bulk carriers (more than 90% of all shipments by volume), whereas many products rely on both container and bulk shipping (e.g., poultry). U.S. exports of livestock products like beef, pork, and cheese are heavily reliant on container shipping (90% of all shipments). These products are likely to be the most affected by the recent spike in container rates and shipping costs.

Share of Commodity Export Volume by Shipping Mode: 2003-2021

Sources: 

Freightos Data (2021) FBX Routes. https://fbx.freightos.com/freight-index/FBX03

Trading Economics (2021) Baltic Exchange Dry Index. https://tradingeconomics.com/commodity/baltic

U.S. Department of Commerce (2021). USA Trade® Online. U.S. Census Bureau. https://usatrade.census.gov/

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Muhammad, Andrew, and Michael Adjemian. “The Rise in Shipping Costs and U.S. Agricultural Exports.” Southern Ag Today 1(51.4). December 16, 2021. Permalink

Passage of the Trade Sanctions Reform and Export Enhancement Act of 2000 allows U.S. firms to legally export their agricultural products to Cuba and travel there for business purposes. From modest beginnings of $140 million in 2002, U.S. exports grew to $387 million in 2004, peaking at $694 million in 2008. U.S. exports then fell to $456 million in 2012, $215 million in 2016 and $157 million in 2020 (Figure 1). Frozen poultry, soy products and corn have accounted for virtually all U.S. export in recent years. Remittances, exports and tourism are major hard currency earners for Cuba and determine market potential, and the success of U.S. exports. Market potential is hampered by strict U.S. regulations on financing and Cuban requirements to export through the state trading entity, Alimport. Cuba has the potential to be a $1.0 billion market absent government restrictions and more open trade between the two countries. Competition is keen and growing as the U.S. presence in the market has declined.

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Rosson, Parr. “Cuba: Potential Market or Continuing Menace?” Southern Ag Today 1(49.4). December 2, 2021. Permalink

The recent spike in fertilizer prices will have a significant impact on U.S. crop production moving forward. The global fertilizer market had already been tightening before plants were forced to cut production given the rise in the cost of gas, a key feedstock (Larkin, 2021). In the U.S., this has resulted in a significant increase in fertilizer import prices. Over the last 5 years (2016-2020), U.S. fertilizer imports have averaged nearly $6 billion (around 25 million metric tons), accounting for a significant share of total fertilizer use in the U.S. (USDA-ERS, 2019).

Most U.S. imports are either potassic fertilizer (potash) and nitrogenous fertilizer, as well as mixed fertilizers. Since 2017, potassic import prices have averaged less than $220 per metric ton (MT) but has increased to nearly $300/MT in recent months (August 2021), which is an increase of about 40% when compared to the average from 2017-2020. Nitrogenous fertilizer, which also averaged less than $220/MT over the last four to five years, is now more than $350/MT, an increase of about 71% when compared to 2017-2020. The price of imported mixed fertilizer has increased to nearly $700/MT, up 58% when compared to 2017-2020. Trends suggest that fertilizer import prices will continue to increase, resulting in significant economic strain for U.S. producers.

U.S. fertilizer import prices significantly higher in 2021 due to global supply and demand issues

References

Larkin, N. (October 15, 2021) Supply Lines Fertilizer Crisis Piles More Pressure on World’s Future Food Supply. Bloomberg. https://www.bloomberg.com/news/newsletters/2021-10-15/supply-chain-latest-warnings-mount-over-fertilizer-crisis

U.S. Department of Agriculture, Economic Research Service (USDA-ERS) (2019). Fertilizer Use and Price. https://www.ers.usda.gov/data-products/fertilizer-use-and-price.aspx  

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Muhammad, Andrew. “Global Fertilizer Market Affects U.S. Import Prices.” Southern Ag Today 1(46.4). November 11, 2021. Permalink

Less than three months remain in the US-China Phase One Trade Agreement. Although China’s purchases of US exports overall are projected to fall short of the two-year, $200 billion target (Bown 20211), China’s purchases of US agricultural products have steadily increased. An important question, however, is whether increased Chinese imports from the US has translated into actual gains in US market share, relative to the 2017 pre-trade war benchmark? This figure plots changes in US trade values against changes in US market shares in 2021 (Jan-Aug) at the product level relative to the same period in 2017 (Jan-Aug). US corn exports are the big winner, with exports to China increasing over $3.5 billion compared to 2017, coupled with a nearly 40%-point gain in the US corn market share in China. US beef and poultry  exports to China also gain in value and market share thanks to the easing of China’s non-tariff prohibitions. 

However, for a number of product categories, increasing Chinese imports from the US (moving east on x-axis) have not translated into market share gains relative to 2017 (moving north on the y-axis). US exports experiencing higher trade with China but a declining market share include pork, wheat, grain sorghum, feed and fodder, cotton, and to a lesser extent, soybeans, dairy, and tree nuts. Thus, for many US agricultural products, China’s increased year-to-date import values in 2021 has not necessarily resulted in higher US market share in China. Overall, US agricultural and seafood exports to China are up $7.4 billion through August 2021 relative to the same period in 2017, but down 4.8 percentage points in market share. Relatively speaking, this perplexing drop in agricultural and seafood market share suggests China is actually importing more from the rest of world compared to its imports from the US under the Phase One Trade  Agreement. 

Year-to-date (Jan.-Aug.) trade value and market share changes for US ag exports to  China by-product: 2017 versus 2021

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Grant, Jason H. . “US Agricultural Market Shares Fall, Despite US-China Trade Increasing in 2021.” Southern Ag Today 1(44.4). October 28, 2021. Permalink