OUTLOOK FOR U.S. AGRICULTURAL EXPORTS February 28, 1995 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- 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-5. 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 forecast for fiscal 1995 exports of U.S. wheat and flour is increased 1.5 million tons and $400 million from USDA's November forecast to 34.5 million tons valued at $5 billion. This upward revision is largely due to improved prospects for U.S. wheat shipments to China and Egypt and slightly higher export prices. The relatively tight exportable surplus of major competitors (due mainly to a smaller crop in Australia) and strong domestic use in the European Union also support the expansion of U.S. wheat exports. The forecast for U.S. coarse grain shipments in fiscal 1995 is increased 8.6 million tons and $1.1 billion from November's forecast to 57 million tons valued at $6 billion. This is mainly due to an upward revision in corn exports, which are now forecast at 50 million tons valued at $5.3 billion. China, normally the major U.S. competitor in the global corn market, is now expected to export only 3 million tons versus a forecast of 9 million tons in November. In addition, China is expected to import 2.5 million tons. Given this situation, the United States will ship some corn to China, and sales to Japan, South Korea, and other Asian markets are expected to increase. The fiscal 1995 forecast for U.S. rice exports is revised upward 200,000 tons to 2.9 million tons valued at $800 million. Strong demand from China and Indonesia has supported Asian export competitors' prices at higher than expected levels, leaving the United States in a competitive position. As a result, the United States is expected to increase export volume while lower prices will keep total export value unchanged. The forecast for U.S. exports of oilseeds and products in fiscal 1995 is increased 600,000 tons to 30.5 million tons and $400 million to $7.6 billion. This is due, in part, to an upward revision of 400,000 tons and $100 million for soybean exports, which are now forecast at 21.4 million tons valued at $4.5 billion. The forecast for soybean oil is raised 130,000 tons to 930,000 tons and $120 million to $620 million. Soybean meal exports remain unchanged at 5.4 million tons valued at $900 million. The sharp recovery in U.S. oilseed production and reduced world carryover for seeds and products continue to support increased U.S. exports of both oilseeds and products. Although the total vegetable oil output of Malaysia, Indonesia, and the Philippines is expected to increase, beginning stocks in these countries are the lowest in 10 years. China's demand for soybean oil is now expected higher, boosting U.S. prices and foreign demand for U.S. soybean oil. The fiscal 1995 forecast for U.S. cotton exports is increased 600,000 tons and $900 million from the November forecast to 2.2 million tons valued at $3.4 billion. These adjustments reflect weaker production prospects in India and Pakistan and stronger than previously anticipated import demand from China. This situation, coupled with reduced exportable supplies in Central Asia this year are expected to further boost U.S. export quantities and export prices. If this forecast is realized, the U.S. share of world trade could reach 34 percent, the highest since the 1960/61 marketing year. The forecast for exports of U.S. livestock, dairy, and poultry products in fiscal 1995 is increased $200 million from the November forecast to a record $9.3 billion. This is largely due to a $100-million upward revision in poultry meat exports to $1.9 billion, as import demand in several major markets, including Hong Kong and Russia, continues to strengthen. U.S. exports of dairy products and hides and skins are expected to remain unchanged at $800 million and $1.5 billion, respectively. Mexico's peso devaluation is expected to slow U.S. live cattle and red meat exports to that country and place downward pressure on U.S. red meat export prices. Generally offsetting these declines, however, are higher expected U.S. beef exports to Japan and South Korea and EEP-supported pork shipments to Russia. The forecast for fiscal 1995 exports of U.S. horticultural products is increased $300 million from the November forecast to a record $8.9 billion. The forecasts for fresh and processed vegetables and tree nuts are each revised upward by $100 million to $2.4 billion and $1.1 billion, respectively. The forecast for fresh and processed fruit remains unchanged at $3.3 billion. Highly processed food and beverage exports account for the remainder. 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, such as Canada, Japan, the European Union, and other Asian markets, continue to drive U.S. exports higher. Growth in these markets is expected to more than offset a decline in U.S. sales to Mexico due to the recent peso devaluation. Economic Outlook Economic growth prospects for most regions and countries are little changed since November, except for Mexico. World gross domestic product (GDP) is expected to grow 3.3 percent in 1995, compared with an estimated 2.8 percent in 1994. At over 8 percent, growth remains robust in the Asia-Pacific region, supporting record U.S. agricultural exports there. The peso devaluation is expected to limit Mexico's 1995 GDP growth to 1 percent, if not lower, instead of the nearly 5 percent earlier anticipated. This sharp downward revision will curtail U.S. export growth to Mexico in 1995. Regional Highlights U.S. agricultural exports to most major regions and countries are revised upward or remain unchanged compared with the November forecast. The former Soviet Union (FSU) and Mexico are the exceptions. At $21.4 billion, exports to Asia are expected to be $3 billion higher than previously forecast. Increased corn and cotton exports to China, South Korea, and Taiwan, higher wheat exports to China and Pakistan, and strong gains in meats, fruits, and vegetables to the East Asian and Southeast Asian markets account for most of the gain to Asia. Forecast exports to both the European Union (EU) and Canada are raised $300 million because of increases in high-value exports. Gains are expected in meat, fruit, and vegetables. U.S. exports of rice and animal feeds to the EU should rise, and Canada is expected to purchase more U.S. corn than in fiscal 1994. Exports to North Africa are boosted by increased sales to Egypt. U.S. exports to Egypt are expected to rise to $1.1 billion because of strong wheat sales. Egypt is buying wheat from the United States this year because Australia's exportable supplies have been cut sharply due to drought. U.S. wheat shipments to Egypt totaled almost 2.1 million tons from October 1994 through December 1994. Mexico U.S. agricultural exports to Mexico are revised downward $800 million to $3.6 billion because of the devaluation of the Mexican peso. The devaluation is expected to raise the price of imported goods, sharply curtail income growth, stimulate inflation, and choke off previously expected U.S. export growth in fiscal 1995. Mexico is expected to suffer a short, but sharp recession in early 1995, given restrictive fiscal policy, higher interest rates, and a jump in inflation. The peso is expected to stabilize at between 4.5 and 5.0 per dollar by the end of 1995. The Mexican growth rate should recover to 3 percent in 1996, from about 1 percent in 1995. Higher domestic prices are expected to encourage expansion in domestic food and feed grain and oilseed production at the expense of imports. Also, stronger growth for beef, pork, and poultry production is expected, as higher domestic producer prices offset increased costs for feed, seeds, and fertilizers. On the demand side, the devaluation will slow economic growth and income gains, leading to lower meat consumption and increased consumption of corn as a food staple. Area planted in export-oriented crops, including horticultural products, coffee, and cotton, will expand because rising export prices more than offset rising credit and input costs. PROCAMPO will increase its direct payments to eligible producers to 440 pesos per hectare in the upcoming spring-summer cycle, a 3-percent real increase over 1994. Reportedly, CONASUPO (the government's agricultural marketing agency) is considering the possibility of using a 4.5 pesos/dollar exchange rate to sell corn to the feeding industry in order to provide additional support to the domestic livestock sector. To maintain lower prices for consumers of wheat products, ASERCA (the government's grain marketing agency) intends to provide direct subsidies to the wheat milling industry in Mexico. Record exports of nearly $1.2 billion during the first quarter (October- December 1994) of fiscal 1995 will limit the overall decline in U.S. agricultural exports to Mexico to about 12 percent in fiscal 1995. U.S. exports of high-value products (HVP) such as meats and deciduous fruits, which have gained as Mexico's income grew in recent years, are likely to suffer the largest declines during the last three quarters. Exports of beef, pork, and poultry meats are expected to fall below 1994 as Mexicans reduce consumption of higher-priced meat proteins in their diets. Cuts of high-quality beef, which are consumed by higher income buyers and in the tourist industry, are likely to decline less than other cuts of beef. Import demand for feed grains, particularly grain sorghum, is anticipated to decline somewhat because higher feed costs will lead to short-term reductions in the hog and poultry sectors. U.S. corn exports are likely to remain stable as Mexico's corn support policies keep domestic corn prices high. Mexico is expected to import corn at the NAFTA quota level in calendar 1995. Dairy products are expected to decline below fiscal 1994 because of reduced shipments of cheeses and soft dairy products, but Dairy Export Incentive Program (DEIP) allocations will likely push exports of nonfat dry milk powder (NFDM) above 1994 as the Mexican Government uses DEIP to meet increased feeding needs. Mexico was allocated 30,000 tons of NFDM in January. Mexico's GSM authorization is $1.25 billion for fiscal 1995, but only $805 million was operational as of January 6, 1995. Japan U.S. exports to Japan are revised upward $400 million to $9.6 billion based an improved outlook for bulk commodities and continued strong high-value product sales. The Kobe earthquake is expected to have a minimal negative impact on U.S. agricultural exports in fiscal 1995. Some stored grains and oilseeds and perishable goods in cold storage were likely destroyed and may need to be replaced. Approximately 20 percent of the Japanese soybean crushing industry is in the Kobe area, and although crushing in Kobe will be disrupted, additional crushing in other parts of Japan is likely to maintain U.S. soybean exports. The main impact will be on the Japanese domestic distribution system as exports are rerouted to other port facilities. Since the November forecast, increased prospects for a rebound in corn use and smaller exports by China have raised prospects for U.S. corn exports. Soybean export volume is expected slightly lower than in November, but higher soybean prices since November will leave the value virtually unchanged. Compared with last year, however, the value of soybean exports will be lower because of reduced soybean prices this year. Higher cotton export unit values have also boosted cotton export value. The value of U.S. exports of red meats, poultry, fresh fruit and vegetables, and processed vegetables was 28 percent higher during October-December 1994 than a year earlier. These high-value product exports are expected to continue strong and possibly surpass last year's records. China The forecast for exports to China is revised upward $600 million to $1.7 billion, the highest U.S. exports since 1982. U.S. agricultural exports will gain because of large increases in corn, cotton, soybean oil, and wheat shipments. Even though China recently canceled corn purchases of over 600,000 tons in February, the United States is expected to provide a significant share of China's 2.5 million tons of total corn imports in fiscal 1995. Through February 9, 1995, U.S. exporters have reported shipments of over 400,000 tons in marketing year (September-August) 1994/95, with most of the shipments occurring in January 1995. Cotton exports are expected to rise above fiscal 1994 as China continues to buy U.S. cotton. Higher cotton export unit values and strong Chinese import demand caused by production shortfalls and distribution problems will push the value of U.S. exports to China to one of the highest levels ever. Wheat sales in fiscal 1995 continue ahead of 1994's pace. During October- December 1994, the United States shipped nearly 300,000 tons of wheat. China has purchased 2.7 million tons through the Export Enhancement Program (EEP), and another 1-million-ton allocation was announced for China on February 7, 1995. EEP bonuses are significantly lower than in fiscal 1994 because of higher wheat prices, raising the value of wheat exports to China. Former Soviet Union The forecast for the FSU is revised downward $300 million to $1.2 billion because of a weakened outlook for bulk exports, particularly to Russia. October-December exports totaled about $260 million, $485 million below a year ago. Total FSU coarse grain imports in marketing year 1994/95 are projected at less than 2 million tons, and wheat import demand remains weak. Shipments of poultry meat were stronger in the first quarter than last year. But shipments could slow if Russia and other FSU countries manage to enforce higher import tariffs on agricultural commodities. 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 foreign food assistance. The assistance is provided through three separate program authorities. Title I of P.L. 480 provides for sales of U.S. agricultural commodities to developing countries 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 estimates for P.L. 480 appropriations in fiscal 1995 are as follows: Title I, $260.1 million; Title II, $821.1 million; and Title III, $64.9 million. For fiscal 1995, the President proposed rescissions totaling $60.2 million for Title I and $92.5 million for the Title III program. The proposed rescissions will produce an estimated 3.8 million tons of food assistance in fiscal 1995 under the P.L. 480 program. On January 19, USDA announced revised country and commodity allocations for the second 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 $259 million for commodity loans and grants among 24 countries and is holding an additional $32.3 million in reserve to fund unforeseen needs during fiscal 1995. The main changes to USDA's initial allocations for fiscal 1995 announced on October 7, 1994, are the increased allocations of $5 million each to Jordan and the Ukraine. As of late January 1995, AID had announced approved programs under Title II totaling $506 million. African countries are programmed to receive 45 percent with Ethiopia, Burundi, Sudan, and Rwanda the major recipients. Asian and Latin American countries are programmed to receive 26 percent and 24 percent, respectively. The former Yugoslavia republics receive the remainder. As of February 15, 1995, AID had not announced country allocations under the Title III program. 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 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 for P.L. 480 assistance 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 February 4, GSM-102 and GSM-103 credit guarantee applications received by the CCC amounted to about $1,100.92 million, approximately 10 percent below the same time last year. Applications represent the amount of credit guarantees requested by exporters and are an indication of sales activity under the program. As part of the 1996 budget, the Administration has proposed maintaining a total program level of $5.7 billion for the CCC export credit guarantee programs. However, the program of credit guarantees for emerging democracies, which was mandated by provisions of the Food, Agriculture, Conservation, and Trade (FACT) Act of 1990 during the 1991-95 period, will not be continued in 1996. Two new credit guarantee activities (supplier credit guarantees and facilities financing guarantees) are proposed to be implemented as part of the GSM-102 program. The Export Enhancement Program and the Dairy Export Incentive Program EEP sales are strong in fiscal 1995 as of February 10, although bonuses are much lower than a year earlier. The total fiscal 1995 EEP bonus as of February 10, 1995, is $213.3 million, down more than a half from the fiscal 1994 bonuses as of February 4, 1994. Lower EEP bonuses are the result of higher global wheat prices. A major development in the EEP for wheat was an announcement of an additional 1 million tons for China on February 7, 1995. China has already purchased 2.7 million tons of wheat under EEP in fiscal 1995. A calendar 1995 Dairy Export Incentive Program (DEIP) was announced on January 20, 1995. The 1995 DEIP will be available for sales to 110 countries for 114,500 tons of milk powder; 99 countries for 37,650 tons of butterfat; and 75 countries for 3,850 tons of cheddar, gouda, feta, cream, mozzarella, and processed American cheeses. The largest allocations for nonfat dry milk powder are for Algeria (30,000 tons) and Mexico (30,000 tons). DEIP sales of nonfat dry milk powder under the 1995 initiative are brisk, totaling 36,812 tons as of February 10, 1995. Bonuses for calendar year 1995 are $31.8 million. Import Commodities Agricultural imports are forecast at $28.5 billion, $500 million higher than the November forecast because of expected increases in cattle, beef, and vegetable imports. Agricultural imports from Mexico are now forecast at $3.1 billion, a $200-million increase caused by the devaluation of the Mexican peso. The vegetable import forecast is $2.9 billion, up $100 million since November, as imports of tomatoes, peppers, onions, cauliflower, and broccoli from Mexico will increase. Volume is projected up by 100,000 tons. Beef imports are forecast at $2.1 billion, up $100 million since the November forecast, with volume at 900,000 tons. The forecast is raised because Australia is allowed to ship more beef to the United States under the Uruguay Round. Due to reduced supplies of "short fed" beef, Australia is expected to ship less beef to Japan, and the increased availability of lower-grade processing meat will result in larger shipments to the United States. The live animal forecast is $1.3 billion, $100 million higher than in November due to expected increases in cattle imports from Mexico. The sugar import forecast is increased $100 million to $1.2 billion. Volume is forecast up 100,000 tons due to a downward revision in fiscal 1994 imports which increased the quantity that can be imported under quota in fiscal 1995. The forecast for rubber import value has been raised $100 million from the November forecast to $1.1 billion as world rubber production is outpaced by consumption, causing prices to rise. Declines in Malaysian rubber output have exacerbated the shortage. Import volume remains steady at 1 million tons. The coffee forecast import volume is unchanged at 1.2 million tons. Coffee prices are expected to be $3,100 per ton for fiscal 1995, resulting in an import value of $3.7 billion. END-END-END