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Macroeconomic Factors Previously Boosted Ag Exports, Are Now Cutting Volumes, Prices

Macroeconomic factors played a “key role” in the steady expansion of US agricultural exports that began in the early 2000s and peaked at a record $152.3 billion in fiscal year 2014, but the current macroeconomic outlook implies weaker prospects for near- and medium-term global agricultural consumption and import growth and for US agriculture’s share of global exports.

That’s among the findings of a report, Global Macroeconomic Developments Drive Downturn in US Agricultural Exports, which was recently released by USDA’s Economic Research Service (ERS).
Robust income gains, particularly in China and other developing countries, boosted import demand for foods, feeds, and fibers, the report noted. An extended period of dollar depreciation during 2003-12 supported the increasing competitiveness of US exports.

Other factors, including declining global stocks of major commodities, rising demand for biofuel feedstocks, slowed growth in productivity, and weather-related production shortfalls also contributed to upward pressure on agricultural markets, the report added.

Since 2014, however, a number of these market fundamentals have changed, the report pointed out. Global income growth has slowed, the dollar has strengthened substantially against the currencies of many US agricultural export markets and competitors, foreign competition has increased, and growth in biofuel markets has slowed.

The net effect of these and other factors has been generally oversupplied markets and rising global stocks-to-use ratios for many major agricultural commodities.

As macroeconomic conditions, as well as other market fundamentals, have changed, US agricultural exports fell more than 8 percent to $139.7 billion in fiscal 2015, driven primarily by lower prices, and are forecast to fall an additional 10.5 percent to $125.0 billion in fiscal 2016.

Further, the USDA agricultural projections released in February 2016 reflect substantially lower global real gross domestic product (GDP) growth and a stronger US dollar in the near term (2016-17) and medium term (2018-2020) than did previous projections released in 2015.
Three major shifts in global macroeconomic trends beginning in late 2014 and continuing throughout 2015 supported the sharply different assumptions underlying the 2016 USDA projections and the 2015 USDA projections:

• A stronger US dollar. US agricultural exports are tied closely to the value of the dollar relative to the currencies of US export markets and competitors. Since 2014, the appreciation of the dollar against most currencies, including a pattern of relatively strong appreciation against the currencies of major competitors, has generally reduced the demand for and competitiveness of US ag commodities.

• Weaker income growth in developing countries. Global and US ag export growth is tied closely to rising incomes in developing-country markets in Asia, Latin America, the Middle East, and Africa.
For the 2015 USDA projections, per capita GDP growth for developing countries in 2015 was forecast at 3.6 percent; for the 2016 USDA projections, the developing-country growth rate for 2015 fell to 2.6 percent.

By comparison, the average per capita GDP growth rate for developing countries during 2001-13 was about 4.2 percent.

• Declining oil prices. The average refiner acquisition price of crude oil in 2015 was $46.39 per barrel, down nearly half from the $91.14 per barrel assumed in the 2015 USDA projections. The 2016 USDA projections assume that oil prices will remain in the low $50-per-barrel range during 2016 and 2017, rising slowly to roughly $80 per barrel by 2025.

Together these shifts led to a macroeconomic outlook characterized by weaker global demand for ag products, diminished US export competitiveness, and lower energy and other commodity prices relative to the 2015 projections.

The changes in the macroeconomic outlook underlying the 2016 projections led to estimated reductions in projected world prices ranging from 3 to 16 percent in the near term and 5 to 19 percent in the medium term, compared with the 2015 USDA projections.

The largest price impacts are for crops, with relatively smaller impacts for meat.

Percentage reductions in projected US export volumes are largest for corn, wheat, and rice. Almost across the board, percentage declines in US exports are larger than those in world trade, indicating reduced US market shares.In a scenario that explores only the impact of an extended period of dollar appreciation beyond that assumed in the 2016 USDA projections, results indicate further reductions