Pandemic flattens U.S. exports
Hopes for a speedy recovery from trade-war losses were dimmed as the USDA projected that U.S. farm exports will barely exceed last year's totals.
While sales to China were increasing albeit slowly, escalating tensions with China that have surged during the coronavirus pandemic have caused uncertainty whether the Phase 1 trade deal struck between the world's two largest economies would be negated.
“The COVID-19 outbreak has created a shock to world economies that will cause an unusually high level of uncertainty for the foreseeable future,” said USDA economists in a quarterly forecast of agricultural exports on Friday.
World growth will decline 5.5% on a per capita basis under the weight of “this global tragedy” that is damaging both productive capacity and buying power, they said.
The outlook for U.S. agricultural exports in 2020 are projected at $136.5 billion, down $3 billion from the February forecast, primarily due to reductions in bulk commodities including soybeans, cotton, corn, and wheat.
Projections for soybean exports are reduced $1.9 billion from the previous estimate to $16.5 billion for FY 2020 due in part to increasingly competitive Brazilian exports.
USDA analysts say China has been sourcing record volumes of soybeans from Brazil, aided by the weak Brazilian real
According to Bloomberg, Brazil’s economy minister Paulo Guedes blamed the real’s slide to an all-time low on the coronavirus outbreak and said the currency could weaken to as much as 5 per dollar.
The USDA estimated U.S. sales to China at $13 billion this fiscal year, compared to its February estimate of $14 billion. In 2019, sales totaled $10 billion. Before the trade war, China was the leading destination for U.S. ag exports and sales averaged $21 billion annually.
According to goals laid out in the Phase 1 agreement, China was committed to purchasing $36.5 billion worth of U.S. food, agricultural and seafood projects this year. However, considering the slowdown in purchases, USDA analysts are
Phase one calls for China to buy $36.5 billion of U.S. food, agricultural and seafood products during calendar 2020. A broad range of U.S. analysts are doubtful that benchmark will be met.
Markets are also poised on the news that China has allegedly told state-owned firms to hold back on purchases of soybeans and pork from the U.S. after the Trump administration said it would eliminate special treatment for Hong Kong to punish Beijing, according to Reuters.
However, a state-owned Chinese firms bought at least three cargoes of U.S. soybeans on Monday.
The purchases, totaling at least 180,000 tonnes of the oilseed, were for shipment in October or November, the peak U.S. soy export season when American soybeans are usually the cheapest in the world, three U.S. traders with knowledge of the deals said.
Large volume state purchases of U.S. corn and cotton have also been put on hold, one of the sources said, adding that China could expand the order to include additional U.S. farm goods if Washington takes further action, according to Reuters.
The U.S. scored a win last week when Vietnam signed a decree unilaterally lowering tariffs on key dairy products and ingredients, including skim milk powder, whole milk powder, cheese, milk albumin and protein isolate, according to the U.S. Dairy Export Council. The decree goes into effect on July 10.
"Most tariffs on dairy products and ingredients will decrease by 50% or more," the USDEC said.
The group says the measure reduces a competitive disadvantage created when the Trans-Pacific Partnership went into effect without U.S. participation, along with other free-trade agreements, including one with the European Union.
Cotton exports are forecast down $1.0 billion on lower volumes and unit values as the COVID-19 pandemic has reduced foreign demand. Corn exports are projected at $8.0 billion, down $500 million on lower unit values, which are pressured by ample exportable supplies and weak domestic use for fuel ethanol.
The forecast for wheat exports is down $300 million to $6.1 billion, as larger global supplies and uncompetitive U.S. pricing reduce prospective volume. Livestock, poultry, and dairy exports are unchanged from the February projection of $32.4 billion, as stronger demand for pork and dairy products offsets a decline for beef and poultry products.
The forecast for horticultural exports is unchanged at $35.5 billion. U.S. agricultural imports in FY 2020 are projected at $130.2 billion, down $2.3 billion from the February forecast. This decline is primarily driven by expected decreases in imports of horticultural products such as beer, fresh fruit, and fresh vegetables.
Trade outlooks on the U.S. borders is a bit brighter, according to the USDA. U.S. ag exports to Canada and Mexico were expected to be above last year's totals, with Canadian purchases up 1% and sales to Mexico up 4%.
Sales overseas to Japan and South Korea are expected to hold steady.
“All things considered, ag trade is holding up a lot better than many might expect with all of the COVID-19-related problems,” said Joe Glauber, former USDA chief economist.