U.S. agriculture is experiencing large reductions in the number of dollars generated from sales of Ag exports. The reduction in export sales is a key influence on sharply lowering U.S. farm income. After setting records in fiscal years 2013 and 2014, U.S. agricultural exports have fallen to $139.7 billion in 2015; $12.6 billion lower than in 2014. Agricultural exports are projected to fall another $8.2 billion dollars in fiscal 2016, to $131.5 billion, according to USDA’s latest trade outlook, published in December (ERS, 2015). Declines of this magnitude will likely put downward pressure on 2016 farm incomes. 

Grain and feed exports fell $4.8 billion from 2014 to 2015 and were expected to fall an additional $3 billion in 2016. Oilseed exports fell $3.2 billion from 2014 to 2015, and were projected to decline another $5.4 billion in 2016. Livestock, dairy and poultry exports fell $4.5 billion in 2015, and are projected to fall another $1.1 billion in 2016. These reductions are largely attributable to lower commodity prices but, wheat and corn volumes were also down in 2015 but soybeans were higher. Estimates for 2016 are for lower volumes of corn and soybeans but for some slight increases in meat volumes. 

Contributing to the weak export outlook are weekly export sales reports available from USDA (FAS, 2015). Corn export commitments are now lower than in any of the previous five crop years, except the 2012/13 drought year. Soybean export expectations are better, but weekly commitments are nevertheless lower than for the previous two crop years. While the weekly pattern of exports can vary, so these are imperfect predictors, they are further evidence that stagnant export volumes are contributing to low prices and expectations of larger carryout stocks. The November WASDE reports do not reflect these low weekly sales data. USDA WASDE estimates are down only 4% for corn since August, and soybean exports are the same as in August, while weekly commitments are down 24.9% for corn and 16.9% for soybeans. The weekly data show weakness in both quantity and price for key export commodities and may lead to USDA lowering current export volume estimates even more for corn and soybeans. 

Two important factors contributing to this weak agricultural export outlook are weak economic performance abroad and the extremely strong exchange rate of the dollar. While IMF projections of the U.S. economy are for somewhat faster growth in 2015 and 2016, projections for other advanced economies as well as for emerging and developing economies were mostly lower (IMF, 2015). Their projection is for Chinese economic growth to be only 6.8% in 2015 and 6.3% in 2016. 

This economic outlook has contributed to the rising dollar. Relative to the Euro, the dollar appreciated 19% in the past year and is expected to appreciate another 1.7% in 2016 (by USDA). From November 2014 to November 2015, the dollar appreciated 8.6% in real, inflation adjusted terms. The dollar also strengthened relative to other currencies. According to the USDA agricultural exchange rate index, weighted by U.S. trading partners and competitors, the dollar appreciated 9.4% from November 2014 to November 2015 (ERS, 2015e). Over this same period, the dollar has appreciated relative to the Brazilian real by 40% after adjusting for inflation. 

In its October Economic Outlook Update, the International Monetary Fund (IMF) highlighted the longstanding relationship between exchange rates and commodity prices (IMF, 2015). This relationship is well known to the U.S. agricultural community: When the dollar is strong, U.S. agricultural prices tend to be low. The strong dollar is likely an important factor contributing to weak agricultural exports. While prices may seem low to U.S. famers, they are not as low for overseas customers or competitors. 

Will the recently negotiated trade agreement immediately improve the trade outlook? The U.S. just concluded negotiations for the Trans Pacific Partnership (TPP) in October. There is a WTO Ministerial meeting in Nairobi, Kenya in December, and the U.S. is continuing to aggressively negotiate the Trans-Atlantic Trade and Investment Partnership (T-TIP) with the European Union. There is much excitement and strong support for TPP by the U.S. agricultural community. According to USDA, the greatest potential agricultural benefits from free trade among TPP members are in dairy, meat, feed and rice, with concession by Japan and Canada being especially important. 

Like any recent trade agreement, TPP falls short of free trade, as tariff rate quotas and other “side deals” limit the extent of liberalization. Work remains to accurately evaluate the complex agreement, and more importantly, the agreement must be ratified by Congress as well as by legislatures in other TPP member countries. Even limited concessions can be politically contentious, and the provisions of TPP do not go into force until at least six countries have ratified the agreement. Early indications are that these agreements can be positive for several U.S. Ag segments, but passage is not assured and generally, implementation of changes is slow, perhaps over a number of years. 

In summary, weak export demand is key to recent agricultural price declines and lower farm income forecasts. Global economic weakness and a strong dollar mean agricultural trade will not turn around quickly. In spite of lower prices and good crops this year, agricultural exports are likely to remain weak for the coming year. Moreover, new trade agreements will probably do little to immediately raise export prospects. 

Works Cited: 

Economic Research Service (ERS), USDA. Agricultural Exchange Rate Data Set, USDA, Washington, DC, 2015e. 

Economic Research Service (ERS), USDA. Outlook for U.S. Agricultural Trade, USDA, Washington, DC, December 1, 2015. 

Foreign Agricultural Service (FAS), USDA. Export Sales Query System, USDA, Washington, DC, 2015. 

International Monetary Fund (IMF), World Economic Outlook (WEO): Adjusting to Lower Commodity Prices, IMF, Washington DC, October 2015.