Agricultural Trade Outlook August 2013

1. Agricultural Trade OutlookAugust 2013 Philip Abbott

2. Key Issues • Record Agricultural Exports, High commodity prices • But Volumes traded are down (corn and soybeans) • Corn export collapse: Exports have assumed a disproportionately large share of rationing the short 2012 crop • But Trade may not return when production recovers • World production has responded to persistent high prices • Indirect corn exports held up better than direct exports • Advance sales for the upcoming crop year are strong • Trade no longer a cornerstone of agricultural policy • Export promotion efforts, WTO/URAA outcome had contributed to higher agricultural exports • Biofuels, Drought have supplanted trade as the mechanism for higher demand, ag prices • Current polices ignore/violate WTO commitments • High prices made some WTO commitments moot • Disputes (eg Brazil cotton)

3. USDA Forecasts Ag exports for 2012/13 @ $139.5 billion • May 2013 Trade Outlook • Values up due largely to high prices, recent volume estimates down • Imports also at record, $111 billion in 2013 • Ag trade surplus $28.5 billion

4. Ag Trade value - $ billions

5. Ag Trade value - $ billions Corn exports overestimated; soybeans, wheat, feeds underestimated

6. Meat and dairy export values at record $30.1 billion, on upward trend

7. World Commodity Price Indices High prices a big part of increased export value

8. Ag trade volume – million mt Corn volume falling since 2008, soybeans since 2010

9. Meat volumes – pork and beef down slightly, dairy & poultry up

10. Weekly data on corn, soybeans Corrections to come On corn and soybean trade, total export value

11. Projections from weekly data show WASDE adjustments lagged WASDE forecast for corn overestimated, soybeans underestimated relative to both Commerce trade data and weekly export reports to FAS

12. August 2013Trade forecast likely to show lower value2014 forecast $8 billion lower!! Corn exports $1-2 billion lower in 2013 than the May trade forecast Soybeans $6 billion lower in 2014

13. Will corn exports return? • Weekly sales from next marketing year at record for corn • China has bought 3 mmt (29%), more than last years total corn imports • But competition from Latin America FSU is strong, and world production has been increasing

14. Soybean advance export sales also very high, but they were also last year and exports tapered to less than record levelsChina at 13mmt, 73% (> their 60% import share)

16. World Area has increased since 2005! 1 hectare = 2.47 acres

18. Ag Trade Volumes in 2012 responded differently from 2008 • In spite of high prices, record volumes of corn and soybean exports were realized in the 2007-08 crop year • ?? Higher export demand elasticity>? • Higher prices elicited greater production here and abroad; reallocation and expansion of land • Self-sufficiency and competition from Brazil, Argentina, former Soviet Union • Lagged adjustment in exports evident in data • 2012 Drought faced already weaker foreign demand, which also now seems more price elastic • Corn exports especially weak

19. WASDE puts strong emphasis on exports’ role in rationing corn and soybeans • Quantities held up in 2007/08 in spite of high prices • But exports have fallen in years afterwards Weekly exports and outstanding sales from 2012/13 crop year support low export forecast, as does Commerce trade data through June

20. Export share of corn rationing has been larger than initial WASDE forecasts

21. Indirect exports held up much better than direct exports • Meat • Biofuels • Ethanol • DDGs • Milling/refining • HFCS • Gluten feed • Indirect exports exceeded direct exports in 2012-13

22. Biofuels adjustments, increasing pork and poultry exports

23. IMF Forecasts Lower Global growth • IMF has once again downgraded growth projections • Emerging economies not growing as fast (China, Brazil) • Euro area mired in recession (technically ending) • Exceeding expectations with +0.3% quarter (2013 II)! • Huge differences across countries in EU – PIIGS still negative • US has been "bright spot" - slow recovery underway • Risks • Unwinding of loose monetary policies - credit tightens • China, emerging economies slow further • Capital leaves emerging economies as QE tapers • Trade as a weak engine of growth • Euro area crisis resumes • Excessive fiscal austerity in US, EU

25. Global Money Printing – Will it ever bring inflation? • Japan - Abenomics • US QE3 – will tapering begin soon? • ECB – LTRO and OMT also inflationary, should weaken Euro • Renewed confidence in Euro dominates • IMF concerned Euro crisis not fully resolved • Currency wars --Brazil objected to QE3 on grounds its competitiveness hurt by depreciating dollar, appreciating Real

26. Bilateral exchange rates

27. Exchange rate trends • Euro steady at $1.32 per € • Chinese Yuan appreciates very slowly • Japanese Yen depreciated 25% after Abenomics began in December, 2012 • Brazilian Real is now depreciating, reflecting weakness in Brazil, emerging economies

28. Trade Policy Reform “5 years of biofuels policy has undone what two decades of trade policy reform had accomplished.”

29. Trade Agreements • WTO Ministerial in Bali in December, 2012 • Lamy to step down as head of WTO • Little evident progress on agriculture • Trans Pacific Partnership (TPP) • US-EU bilateral agreement talks launched • Agriculture content uncertain • Technical issues (SPS, TBT) highlighted in early discussions

30. WTO & Farm Bill • Crop insurance is amber box (but non-product specific) • Or blue box (which US has not used in past) • Rules would allow a differently designed program to be “green box” • Limits on spending ( de minimis, now 5% of ag production value≈ $19 billion) may be approached this year, depending on what counts • Premium subsidies and “reinsurance” to private insurance firms • Negotiations would reduce that substantially – if other countries have their way • Virtually nothing on web shows concern with WTO in current farm bill negotiations

31. WTO & Farm Bill • Commitment to Brazil over cotton dispute • Retaliatory sanctions (services, intellectual property -pharmaceuticals) authorized by WTO in March 2010 • June 2010 compromise: suspend sanctions, $147 million/year to Brazil, change cotton program & export guarantees in next farm bill • June 2012 – threats to restore sanctions if not satisfied with new farm bill • Brazil not satisfied with either House or Senate earlier versions of bills, Congress ignoring issue? House wants to end $147 million payment Senate provision like STAX proposed by Cotton Council • Last week headlines: • USDA says it will stop cotton payments to Brazil (AP, 8/7/13) • Brazil won't rule out retaliation if U.S. cotton payments end (Reuters 8/8/13) • Payments affected by sequester budget cuts • Retaliation on Brazilian ag imports from US, pharmaceutical patents

32. Closing Thoughts • Supply may eventually catch up to demand, lower prices follow (very likely this year!) • Will corn exports return with much lower corn prices? • Exports have responded to prices with a lag, changes “irreversible in short run • Trade volumes unlikely to immediately return with lower prices • Area & production increases abroad due to investments in agriculture • USDA’s 31mmt (1225 mbu) forecast may be optimistic • Export demand will influence floor to corn price • Indirect exports held up • Soybean exports inelastic, but Latin American competition persists • WTO commitments could become an issue again – Can we ignore them?