OUTLOOK FOR U.S. AGRICULTURAL EXPORTS July 11, 1995 Approved by the World Agricultural Outlook Board (SUMMARY released May 31, 1995) ----------------------------------------------------------------------------- OUTLOOK FOR U.S. AGRICULTURAL EXPORTS is published four time a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. AES-6. Please note that this release contains only the text of OUTLOOK FOR U.S. AGRICULTURAL EXPORTS--tables and graphics are not included. Subcriptions to the printed version of this report are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #AES, $17/year. ERS-NASS accepts MasterCard and Visa. ----------------------------------------------------------------------------- Commodity Highlights The fiscal 1995 forecast for U.S. wheat and flour exports is reduced 400,000 tons from USDA's February forecast to 34.1 million tons because of weak import demand from the former Soviet Union and the slow pace of global shipments. Nevertheless, higher wheat prices resulting from lower global stocks will boost the value of U.S. wheat and flour exports $100 million to $5.1 billion. Compared with the previous year, the relatively tight exportable surplus of major competitors (due mainly to a drought- reduced crop in Australia) and strong domestic use in the European Union continue to support U.S. wheat exports. The fiscal 1995 forecast for U.S. coarse grain shipments is increased 1.4 million tons and $400 million from February's forecast to 58.4 million tons valued at $6.4 billion. This is largely due to an upward revision in corn exports, which are now forecast at 51.5 million tons valued at $5.6 billion. China, the major U.S. competitor in the global corn market in recent years, is expected to export only 2 million tons, versus the 3 million tons forecast in February. As a result, U.S. exports to Japan, South Korea, and other Asian markets are higher than previously anticipated. The fiscal 1995 forecast for U.S. rice exports is revised upward 100,000 tons and $100 million to 3 million tons valued at $900 million. Strong demand from China and Indonesia continues to bolster prices offered by Asian rice exporters. In turn, demand for U.S. rice is higher than previously forecast. The fiscal 1995 forecast for U.S. exports of oilseeds and products is increased 600,000 tons and $600 million to 31.1 million tons valued at $8.2 billion. This is due, in part, to an upward revision of 400,000 tons and $300 million for soybean exports, which are forecast at 21.8 million tons valued at $4.8 billion. Brazil's exports of new-crop soybeans are lagging year- ago levels because producers are withholding soybeans from export due to low prices. Therefore, foreign demand for U.S. soybeans, particularly from Europe, has shifted further than previously expected. The forecast for soybean oil exports is raised 180,000 tons to 1.1 million tons and $170 million to $750 million. China's imports of U.S. soybean oil in 1995 are expected higher than previously forecast, following a record purchase in March. Soybean meal exports remain largely unchanged at 5.4 million tons valued at $930 million. The fiscal 1995 forecast for U.S. cotton exports is increased 100,000 tons and $600 million from the February forecast to 2.3 million tons valued at $4 billion. These adjustments reflect more rapid growth in China's imports than previously expected. China's mills have been unable to procure cotton domestically, and imports--largely from the United States--are needed to prevent further declines in consumption and control rising prices. Lower production prospects since February in West Africa and Uzbekistan also support stronger U.S. exports. China's unanticipated imports and concerns about next year's China and Pakistan cotton crops have boosted prices to near-record highs recently. The forecast for fiscal 1995 exports of U.S. livestock, dairy, and poultry products is increased $500 million from the February forecast to a record $9.8 billion. Livestock product exports are forecast up $300 million to $6.9 billion. Increased U.S. production, lower prices, and a weaker dollar support a $200- million increase in red meat exports to $3.6 billion. Beef exports to Japan continue strong, and U.S. variety meat exports to Russia, Japan, and Hong Kong are expected higher. Sales of U.S. hides and skins to South Korea, Taiwan, and Italy are surpassing previous expectations, leading to a $100-million increase in the forecast to $1.6 billion. The continued surge in poultry exports to Russia and Hong Kong resulted in a $200- million increase in the poultry and products forecast to a record $2.1 billion. The forecast for U.S. dairy exports remains unchanged at $800 million. Fiscal 1995 exports of U.S. horticultural products are forecast $500 million above the February forecast to a record $9.4 billion. The forecasts for fresh and processed fruits and vegetables are revised upward by $100 million and $200 million to $3.4 billion and $2.6 billion, respectively. Growth in U.S. fruit and vegetable exports to Japan and Canada, two of the largest markets, is significantly higher than previously expected. The forecast for tree nuts remains unchanged at $1.1 billion. Highly processed food and beverage exports account for the remaining $200-million upward revision in U.S. horticultural exports. Market liberalization, rising incomes, favorable exchange rates in many markets, a growing demand for healthful foods, and on-going market promotion activities in major foreign markets continue to expand U.S. exports. Growth in these markets is expected to more than offset a decline in U.S. sales to Mexico due to the peso devaluation last December. Economic Outlook World gross domestic product (GDP) is expected to grow 3 percent in 1995, slightly lower than expected in February. Prospects dipped because of lower growth expectations in Japan and the United States, but world growth is still expected to be the strongest since 1989. Income growth remains strong in the major U.S. markets of Europe, Canada, and the Pacific Rim, and the weaker dollar further increases export prospects, particularly in Europe and Japan. Regional Highlights Exports to the three largest markets for U.S. agricultural products, Japan, the European Union (EU), and Canada, remain strong and the forecasts are revised upward to $9.7 billion, $7.8 billion, and $5.9 billion, respectively. Exports to Japan were revised upward $100 million largely because strengthening U.S. corn and cotton prices will increase export value. Japan's imports of U.S. meat, fruit, and vegetables continue to reach record levels, supported by the strong yen relative to the dollar. Exports to the EU are revised upward $400 million to $7.8 billion, (the export figures have been revised to include Austria, Finland, and Sweden in the EU), as U.S. soybean exports are expected to be the highest since 1987. The value of U.S. oilseed and product exports through March was nearly $2 billion, as crush margins favored the import of soybeans into the EU. Economic recovery in the EU and the strength of European currencies relative to the dollar are also advancing U.S. exports of fruits, nuts, and prepared vegetables. U.S. exports to Canada are forecast at $5.9 billion, $200 million higher than in February, due to higher average prices for fresh vegetables and strong demand for prepared vegetables. Despite the weaker Canadian dollar, red meat and poultry meat exports are expected to gain as lower U.S. prices favor imports. The forecast for U.S. exports to South and Southeast Asia (Other Asia in table 4) is raised to $3.7 billion. Increased wheat and cotton exports to Pakistan and Bangladesh through March have raised the export value to South Asia. Exports totaled $572 million through March, but the pace will likely slow during the second half of the year as most of the expected wheat exports have been shipped. But further cotton shipments are expected, which will likely raise exports to the highest since 1990. Exports to Southeast Asia totaled $1.4 billion through March, 48 percent higher than a year earlier. The United States exported a record $1.8 billion worth of goods to the region last year, and 1995 exports will easily surpass that level. Much of the expected gain is due to sharply higher cotton exports to Indonesia, and increased soybean and vegetable oil shipments to Indonesia, Malaysia, and Singapore. The United States has also exported more corn to the region since China reduced its exports. U.S. corn exports totaled 572,000 tons during October-March, compared with 1,550 tons during the same period last year. The region's strong economy is also spurring increased U.S. exports of red meats, poultry, fruits, and vegetables. The forecast for Latin America is revised upward $500 million to $7.6 billion. Exports to Latin America, excluding Mexico, are 40 percent higher than a year earlier at $2.3 billion through March. Exports have risen to most of the Central and South American countries, but the largest increase is in Brazil, where U.S. exports are forecast at $800 million, more than three times higher than last year. Through March, exports totaled $466 million because of gains in rice, corn, and soybeans. The pace of exports to Brazil should slow in the last half of the year as Brazil's crops become available. The forecast for exports to North Africa and the Middle East is revised upward $600 million to a record $2.1 billion and $2.2 billion, respectively. U.S. wheat, corn, and cotton shipments to Egypt are up sharply and continue to boost sales to the North Africa region. Exports to the Middle East are rising on increased sales of rice, corn, and cotton to Turkey; higher year- to-date rice, corn, and vegetable oil exports to Iran; and larger corn and barley sales to Israel. The forecast for exports to the former Soviet Union (FSU) is revised downward $100 million to $1.1 billion, but Russia is unchanged at $800 million. With very weak import demand for wheat and coarse grains in the FSU, pork and poultry meat exports are supporting U.S. exports in 1995. Last year the United States exported a record $258 million in poultry meat to Russia, making Russia the leading market in 1994. U.S. exports advanced as consumer demand for relatively cheaper poultry meat exceeded domestic output. Strong sales have continued into 1995 as the United States has shipped $243 million in poultry meat through March. Russia has announced that the tariff on poultry products will increase from 20 percent to 25 percent in July 1995. However, the effect on exports could be slight because lower U.S. prices may partially offset the tariff's rise. China The forecast for U.S. agricultural exports to China is revised upward $600 million to a record $2.3 billion. Exports totaled $1.3 billion during October-March, and are advancing because of unusually strong cotton, corn, and soybean oil sales. Wheat shipments are also likely to surpass 1994 and export value should rise because of higher wheat prices in 1995. Although cotton production in China increased in marketing year 1994/95, China is still importing near record amounts of cotton to ease regional shortages and contain domestic prices. During October 1994-March 1995 China imported nearly 340,000 tons of cotton from the United States. U.S. corn exports to China reached 1.1 million tons through March. China is expected to import a total of 3 million tons of corn from all sources in 1995 because of higher domestic prices and tight supplies in major meat producing regions. The United States is exporting record quantities of soybean oil to China in 1995. As incomes have risen in urban areas, demand for vegetable oil is strong for home consumption and an expanding food processing industry. In 1994, The Government of China reduced tariffs on vegetable oils and began to import to help curb inflation. The relatively high price for palm oil has encouraged increased imports of soybean oil. The United States shipped nearly $290 million in soybean oil during the first half of fiscal 1995. South Korea U.S. exports are expected to rise nearly 50 percent to a record $3.1 billion in fiscal 1995, as total South Korean imports have surged in recent months. Most of the U.S. gain in 1995 has come in corn exports. Corn exports during October-March totaled 4.4 million tons valued at $477 million, compared with 107,000 tons and $14 million a year earlier. With corn exports banned by the Government of China, South Korea has turned to the United States for almost all of its corn imports, and the United States will likely export record quantities to South Korea in 1995. South Korea is a top market for U.S. cotton, and high cotton export prices in 1995 are adding to record export value. Cotton exports during October-March totaled $213 million, 40 percent higher than a year earlier. The improved world economy is leading to increased exports of U.S. hides and skins for South Korea's leather industry. Strong economic growth in Korea (nearly 8 percent real GDP growth in 1994, and projected growth of over 7 percent in 1995) has boosted demand for consumer food products. At 35,000 tons, U.S. beef exports were 39 percent higher through March, making Korea the third leading destination for U.S. beef. Fruit and vegetable shipments are likely to rise above last year's record. Mexico The forecast for U.S. agricultural exports to Mexico remain unchanged from February at $3.6 billion. Exports through March totaled nearly $2 billion, 4 percent higher than a year earlier. However, exports fell sharply during the second quarter because of the depreciating peso. U.S. exports to Mexico during January- March 1995 dropped 29 percent from a year earlier to $794 million. The commodity exports suffering the largest declines since the December devaluation are high-value products such as meats, fruits, and vegetables. During January-March 1995, beef exports dropped 62 percent compared with 1994, and fruit and vegetable exports fell 45 percent. But for the fiscal year to date, beef exports are still 13 percent higher than last year at $80 million. Fruit and vegetable exports are down 6 percent. Exports of grains and oilseeds have not fallen as much as the high-value products. In April 1995 Mexico announced a new producer price policy for corn. The policy establishes a "reference price" derived directly from international prices as the floor price for purchases by CONASUPO, the government's buying agency. The reference price for white corn is 715 new pesos per metric ton or about $110. The policy, which is designed to encourage private sector participation in the marketing of Mexico's corn crop, may serve as a stepping stone to the government's total withdrawal from the domestic corn market beginning in 1996. However, the corn flour subsidy designed to keep tortillas inexpensive is likely to continue for several years. Private sector participation in purchasing corn from farmers has already increased sharply over the last 2 months, while CONASUPO is gradually withdrawing from the market as a supplier of corn for livestock feed. Mexico's feed mills began drawing down stocks and buying domestically produced sorghum and corn because the peso devaluation led to a sharp increase in the price of imported sorghum. After an initial drop, sorghum imports from the United States have approached the pre-devaluation level during the last several weeks, as feed mill stocks are low and prices of domestic sorghum and corn have increased to the point where imports are now attractive. U.S. Agricultural Export Programs U.S. Food Aid Programs The P.L. 480 program is the primary means by which the United States provides food assestance overseas. The assistance is provided through three separate porgram authorities. Title I of P.L. provides for sales of U.S. agricultural commodities to developing countreis through long-term concessional sales. This program is administered by the Foreign Agricultural Service of USDA. Title II provides for donations of humanitarian food assistance to needy people in foreign countries, and Title III provides food on a grant basis to least developed countries. Titles II and III are administered by the Agency for International Development (AID). The current estimate for P.L. 480 appropriations (progran level) in fiscal 1995 is as follows: Title I, $260.1 million; Title II, $821.1 million; and Title III, $64.9 million. These levels reflect the President's proposed rescissions for fiscal 1995 which totaled $60.2 million for Title I and $92.5 million for the Title III program. The proposed rescissions will make available an estimated 3.5 million metric tons of food assistance in fiscal 1995. On April 19, USDA announced revised country and commodity allocations for the third quarter of fiscal 1995 under Title I of the P.L. 480 program and the Food for Progress (FFP) program funded under Title I appropriations. USDA has allocated $219.5 million for commodity loans and grants among 19 countries and is holding an additional $17.7 million in reserve to fund unforeseen needs during fiscal 1995. Third-quarter allocations have been eliminated for Albania, El Salvador, Guatemala, Morocco, and Yemen; and reduced by $2 million and $2.5 million for the former Yugoslavian Republic of Macedonia and the Philippines, respectively. As of May 17, AID had announced approved programs under Title II totaling $868.9 million. African countries are programmed to receive 50 percent with Rwanda, Liberia, Angola, and Ethiopia the major recipients. Asian and Latin American countries are programmed to receive 20 percent and 16 percent, respectively. The former Yugoslavia republics will receive the remainder. Countries receiving Title III allocations include Bangladesh, Guyana, and Honduras. For fiscal 1996, the President proposes a program level of just over $1 billion for P.L. 480 food assistance that is expected to provide total commodity shipments of approximately 3.4 million metric tons. This includes $177.9 million for Title I, $795.7 million for Title II, and $50 million for Title III. The reduced program level recommended in fiscal 1996 results from limitations on funding for U.S. international programs and the need to increase disbursements for other priority activities. CCC Export Credit Guarantee Programs As of May 12, GSM-102 and GSM-103 credit guarantee applications received by the CCC amounted to $1,726.4 million, approximately 16 percent below the same time last year. The major purchaser under the credit guarantee programs in fiscal 1995 has been Mexico; $913.7 million under GSM-102 and $2.5 million under GSM- 103. The Export Enhancement Program and the Dairy Export Incentive Program Export Enhancement Program (EEP) sales, particularly of wheat and table eggs, are strong in fiscal 1995 as of May 19. EEP bonuses for fiscal 1995 of $300.7 million are down 61 percent from last year. Higher global wheat prices continue to keep EEP bonuses low, although bonuses have crept up slightly for more contested markets in recent weeks. DEIP sales also are brisk after the January 20 announcement of the 1995 program. DEIP bonuses were $59.2 million as of May 26. Import Commodities The fiscal 1995 agricultural import forecast is $29.5 billion, up $1 billion from the February forecast. Coffee, rubber, horticultural products, grains, feeds and products, and oilseeds showed second-quarter (January-March) gains, prompting the advance. Coffee prices continue to outpace previous expectations, and even without a repeat of last year's weather-related production problems, tight supplies are expected. The fiscal 1995 import value estimate is $4 billion, as reduced harvests in Latin America and Africa are projected for the 1994/95 crop. Volume is expected to be 1.1 million tons. Reduced coffee shipments during October-March prompted a 100,000-ton reduction in the coffee volume forecast. Roasters are facing low inventories, but are buying as little as possible given high prices. For the first half of fiscal 1995, Mexico was the leading coffee supplier to the United States. Last year's decline in Malaysian rubber production continues to drive up world prices. Although rubber import volume decreased only marginally, import value surged 60 percent to nearly $700 million for the fiscal year to date. The forecast for fiscal 1995 rubber imports has been raised $200 million to $1.3 billion. Vegetable imports are forecast at $3 billion, up $100 million from the previous forecast, but volume for fresh and frozen vegetables is lowered 100,000 tons to 2.4 million tons. Imports of winter fresh vegetables and tomatoes from Mexico advanced due to the short Florida crop, and higher prices have boosted import value. But overall volume is down due to lower potato, onion, and cucumber shipments. The forecast for wine and beer imports is increased to $2.2 billion, as imports from Mexico, the European Union (EU), Australia, and Chile advanced in value due to higher world prices in the first half of 1995. Forecast volume is unchanged from February. The grain import forecast is 5.1 million tons, up 600,000 tons from February, because of higher-than-expected wheat, oats, and barley imports during October-March. Imports are still down sharply from fiscal 1994's high levels. The larger import volume and higher wheat and barley prices have resulted in a $100- million upward revision in grain imports to $600 million. Strong year-to-date feed and grain product imports boosted the forecast $400 million to $1.6 billion. Higher imports of biscuits and feeds and fodders from Canada, and pasta from the EU prompted the revision. Volume is projected at 2.5 million tons, up 500,000 tons from the previous forecast. Rising consumption, mainly for vegetable oils, has boosted world prices for both oilseeds and oils, advancing the fiscal 1995 import estimate to $1.6 billion, up $100 million from February. The import volume forecast is 3.4 million tons on higher October- March oilseed and product shipments. Reduced beef shipments from Australia, due to drought, lowered the beef volume forecast by 100,000 tons to 800,000 tons. Slightly higher prices maintain beef import value at $2.1 billion. Cattle imports are expected at $1.4 billion, $100 million above the February forecast because of increased imports of higher-priced cattle from Canada. The tobacco import forecast fell $400 million to $500 million. Imports slowed dramatically during the second quarter of fiscal 1995 as lower U.S. cigarette production, abundant leaf stocks, and continued restrictions on imported tobacco use limited imports. The volume forecast is 200,000 tons, 100,000 tons less than the February forecast. Higher coffee import value and increased vegetable shipments raised the forecast for U.S. imports from Mexico by $500 million to $3.6 billion. The forecast for imports from Brazil is reduced $100 million to $2.5 billion because of lower expected tobacco shipments. Rising rubber prices due to heightened demand increased the forecast for Other Asian countries (including Indonesia, Malaysia, and Thailand) $200 million to $3.4 billion. Higher-than-expected beer and wine, vegetable oil, and pasta imports for October-March boosted the EU forecast $100 million to $5.4 billion. END-END-END