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Agricultural Trade Outlook August 2013. Philip Abbott. 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

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Agricultural trade outlook august 2013

Agricultural Trade OutlookAugust 2013

Philip Abbott

Key issues
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)

Usda forecasts ag exports for 2012 13 @ 139 5 billion
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

Ag trade value billions1
Ag Trade value - $ billions

Corn exports overestimated; soybeans, wheat, feeds underestimated

World commodity price indices
World Commodity Price Indices upward trend

High prices a big part of increased export value

Ag trade volume million mt
Ag trade volume – million upward trendmt

Corn volume falling since 2008, soybeans since 2010

Weekly data on corn soybeans
Weekly data on corn, soybeans poultry up

Corrections to come

On corn and soybean trade,

total export value

Projections from weekly data show wasde adjustments lagged
Projections from weekly data show WASDE adjustments lagged poultry up

WASDE forecast for corn

overestimated, soybeans underestimated

relative to both Commerce trade data

and weekly export reports to FAS

August 2013trade forecast likely to show lower value 2014 forecast 8 billion lower
August 2013Trade forecast likely to show lower value poultry up2014 forecast $8 billion lower!!

Corn exports $1-2 billion lower in 2013 than the May trade forecast

Soybeans $6 billion lower in 2014

Will corn exports return
Will corn exports return? poultry up

  • 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

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)

World area has increased since 2005
World Area has increased since 2005! also last year and exports tapered to less than record levels

1 hectare = 2.47 acres

Ag trade volumes in 2012 responded differently from 2008
Ag Trade Volumes in 2012 responded differently from 2008 also last year and exports tapered to less than record levels

  • 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

Wasde puts strong emphasis on exports role in rationing corn and soybeans
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

Indirect exports held up much better than direct exports
Indirect exports held up much better than direct exports WASDE forecasts

  • Meat

  • Biofuels

    • Ethanol

    • DDGs

  • Milling/refining

    • HFCS

    • Gluten feed

  • Indirect exports exceeded direct exports in 2012-13

Imf forecasts lower global growth
IMF Forecasts Lower Global growth WASDE forecasts

  • 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

Global money printing will it ever bring inflation
Global Money Printing – Will it ever bring inflation? WASDE forecasts

  • 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

Bilateral exchange rates
Bilateral exchange rates WASDE forecasts

Exchange rate trends
Exchange rate trends WASDE forecasts

  • 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

Trade policy reform

Trade Policy Reform WASDE forecasts

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

Trade agreements
Trade Agreements WASDE forecasts

  • 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

Wto farm bill
WTO & Farm Bill WASDE forecasts

  • 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

Wto farm bill1
WTO & Farm Bill WASDE forecasts

  • 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

Closing thoughts
Closing Thoughts WASDE forecasts

  • 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?