Is the US losing global feed ingredient market space?

By Aerin Einstein-Curtis

- Last updated on GMT

© iStock
© iStock

Related tags International trade

A stronger dollar combined with slowing global income growth may mean a drop in US export market share for some agricultural commodities.

A recently released report by the US Department of Agriculture’s Economic Research Service (ERS), Global Macroeconomic Developments Drive Downturn in US Agricultural Exports​, outlined the role of the US in the global feed ingredient market.

The report examined the interplay between global economic growth and the US’s role in the market, said Bryce Cooke, ERS economist.

“The main objectives of this research are to analyze the impacts of alternative global economic growth and exchange rate scenarios on US agricultural trade and prices for major bulk agricultural commodities,”​ he told FeedNavigator.

Export of agricultural commodities can be tied to income growth in developing countries, and remains sensitive to the value of the dollar, said the agency in the report. Slower global income growth combined with appreciation of the dollar could mean reduction in volume of US exports and in market share.

However, there are conditions beyond the macroeconomic side that have to be taken into account when analyzing the US’s role as an exporter of feed and feed ingredients, like domestic production compared to competing countries and what barriers to trade may exist, Cooke said. “But this report does find that the relationship between macroeconomic fundamentals and trade flows tends to hold over time,”​ he added.

Report details

Macroeconomic factors starting in the 2000s led to a continual expansion of US agricultural exports and reached a peak $152.3bn in 2014, said the ERS. Conditions that aided the growth included income gains developing countries leading to increased import of food, feed and fiber; a weaker dollar and dwindling global commodity stocks.

However, several of those conditions have changed, the agency said. “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,”​ it added.

US agricultural exports, including feed ingredients, dropped by 8% in fiscal year 2015, the agency said. Agricultural projections from earlier this year are predicting lower global real gross domestic product growth and an improved dollar in the near term, 2016-17, and for the medium term, 2018-2020.

“The broad appreciation of the dollar since late 2014 has generally diminished the global competitiveness of US agricultural commodities, putting downward pressure on the U.S. export marketshare,”​ said Cooke.  “A closely related and equally important shift in the macroeconomic environment has been falling rates of income growth in developing country markets, which are a key driver of global demand for agricultural exports. It is also important to note that, in the current scenario, developing country exporters have sharply depreciating currencies and weaker domestic demand, making those nations even more competitive.”

Income growth in China is now thought to be slower than once expected, the agency said. Similarly, growth in South Korea, Hong Kong, Taiwan, Indonesia and the Philippines is predicted below past levels.

Canada and Mexico are expected to see a reduced income growth and weaker currencies, the agency said. Japan and the EU also are predicted to have slow but consistent income growth, while Australia has a slowing export market.

“Argentina and Brazil were projected to be in recession in 2015, with very slow growth or continued recession expected in the near term, followed by a slow recovery,” ​said the ERS.

Times when the dollar was stronger relative to other currencies are associated with a decline in exports, the agency said. The pattern exists for different categories of agricultural goods – bulk, intermediate or semi-finished and consumer-oriented – but is clearest for intermediate and bulk goods like grain.

Looking forward, the expectation for the near- and medium-terms show a decline in exports, the agency said. “Almost across the board, percentage declines in US exports are larger than those in world trade, indicating reduced US market shares,”​ it added.

Scenarios examined

Additionally, the report posited a series of scenarios examining the combined effect of a reduced global economic growth and improved US dollar and of extended dollar strengthening on global trade projections, said the ERS.

US exports were predicted to see reduction for corn of about 1.8-2% in the near term and 1.6% in the medium and in wheat of about 0.4-1.2% in the near and negligible for the medium terms, the agency said.

Soybean exports by volume would not see as much alteration, falling from 0.9-1.6m tons for the near term and about 2.9m tons annually in the medium term, the agency said. Soymeal would drop about 0.7-1.1% in the near term and see growth of about 0.5% in the medium term.

The second scenario examined the influence of a longer period of dollar appreciation starting from the 2016 USDA projections, the agency said. The period and degree of dollar appreciation is the main uncertainty in predicting US agricultural trade outlook.

The example generated a higher rate of currency depreciation for other commodity exporters, including Russia, Ukraine, Brazil, Argentina, Australia and South Africa, the agency said.

“Near-term (2015/16-2016/17) changes in world prices range from -0.9 to -4.9% for meats and from -2.4 to -7.8% for crops,” ​said the ERS. “In the medium term (2017/18-2019/20), price changes tend to be larger, ranging from -3.7 to -6.0% for meats and from -5.7% to -8.8% for crops.”

The US exports would see the largest reductions in corn and wheat for both the near and medium term, it said. And, percentage losses predicted for the US would continue to be greater than reduction in world trade.

In corn, countries including Ukraine and Argentina are expected to expand their market share, the agency said. In soybeans, Argentina and Brazil grow their market share at the expense of the US.  

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