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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1877

June 1996

AgLetter
AGRICULTURAL EXPORTS CLOSE IN
ON ANOTHER RECORD YEAR
Recent USDA reports indicate that the value of U.S. agricultural exports will reach a new high in the fiscal year ending
this September (fiscal 1996). The projected gain reflects rising
bulk commodity sales, especially for wheat, corn, and soybeans. Red meat and poultry exports are also doing well.
Agricultural exports to Mexico have rebounded from the dismal
showing of the prior year that was sparked by the devaluation of the Mexican peso, and shipments to Russia have also
recovered. In addition, the Federal Agricultural Improvement
and Reform Act of 1996 contains several modifications that
will influence agricultural exports in the future.
The USDA’s May forecast for U.S. agricultural exports in fiscal 1996 remains at $60 billion, unchanged from
the projection released three months earlier, and up from
$54.1 billion last year. While the overall estimate was unchanged, revisions were made for several individual commodities. A stronger price outlook led to upward revisions
for rice, corn, and cotton, while the pace of poultry shipments has exceeded prior expectations. In turn, these gains
were offset by downward revisions for soybean meal and
oil, hides, dairy products, sugar and sweeteners, and fruits
and vegetables.
The projected value of agricultural exports in the current fiscal year is about a tenth larger than last year and
nearly 40 percent greater than two years earlier. Much of
the current gain stems from a year-over-year rise of nearly
20 percent in the value of bulk commodity sales, particularly for wheat, corn, and soybeans. In comparison, sales of
processed products are expected to rise a more modest
5 percent, pushed higher by larger exports of red meat and
poultry. The gain in export sales mostly stems from higher
prices—particularly for corn and wheat—as the export volume of both bulk and processed items will register moderate year-over-year declines.
Unlike the total for exports, the projected value of agricultural imports was raised from the February forecast by
$1 billion. The increase narrowed the anticipated agricultural trade surplus to $29.5 billion, which—if achieved—would
still be the largest ever. Overall imports of agricultural products are projected to register a modest year-over-year rise of

3 percent. The increase is fairly broad-based, with most
categories expected to register gains. The exceptions are
live animals, red meat, dairy products, and vegetables. In
terms of value, the largest import category is fruits and
juices, followed by coffee, vegetables and preparations, and
wine and malt beverages. These groups account for nearly
40 percent of the value of agricultural imports.
Most regions of the world are expected to increase
their purchases of U.S. agricultural products in fiscal 1996.
The strongest gains are projected for the former Soviet
Union, Latin America, and Asia. In particular, a recovery
in exports to Mexico and Russia will provide a strong boost
in sales to their respective regions. And the ongoing growth
in Asian economies and their shift towards Western-style
diets will help exports of U.S. agricultural products to this
region post another solid gain.
The U.S. agricultural sector can well appreciate the
projected 20 percent gain in exports to Mexico, our thirdlargest export market behind Japan and Canada. Sales of
agricultural products to Mexico fell about a tenth in fiscal
1995 due to the peso devaluation and declining income.
That setback consisted mostly of a drop in sales of processed products as bulk commodity sales held fairly steady.

U.S. agricultural trade
billion dollars
60

Exports
40

Imports
20

Surplus
0
1971

’76

’81
’86
fiscal year (October-September)

*Forecast
Source: U.S. Department of Agriculture.

’91

’96*

Sales of both corn and wheat were up sharply last year,
boosted by rising consumption trends as well as a decline
in Mexican corn production. In the first half of the current
fiscal year, the value of bulk commodity sales to Mexico
posted a large gain over the same period from a year earlier. However, sales of processed products continued to slip,
dropping about 7 percent.
In comparison, the value of Mexican agricultural
products imported into the U.S. during fiscal 1995 registered a year-over-year gain of about a third. Each of the
four major import categories—raw coffee, live animals,
fresh fruits, and fresh vegetables—registered large gains.
Together, these four product groups account for about two
thirds of the value of agricultural products imported from
Mexico. But through the first half of fiscal year 1996, the
import value of each—except fresh fruit—was down significantly when compared to the same period a year earlier.
Midwest farmers have benefited considerably from
rising exports. The USDA’s current forecast indicates that
corn exports will reach 2.3 billion bushels in the marketing
year ending this August. This represents a 6 percent gain
from the prior year and is the largest level in six years. But
because of sharply higher prices, the gain in value will be
substantially higher. The growing worldwide demand for
coarse grains and limited competition from other exporting
nations are the primary factors contributing to the improvement in corn exports. Exports out of South Africa were
down sharply over the past year due to dry weather that
reduced the previous harvest. However, South Africa’s corn
harvest recovered this spring and will provide greater competition to U.S. corn producers in the year ahead.
Much of the gain in corn export sales came from Latin America and Asia. As of May 30, export commitments
(shipments plus outstanding sales) to Mexico were more
than double that of a year earlier. Furthermore, commitments to Asian nations were up by about a tenth, led by
sharp gains in sales to Malaysia, the Philippines, and
Thailand. Our largest Asian customers—Japan, South Korea, and Taiwan—also registered significant, albeit lesser,
gains. China is expected to remain a net importer of corn
this year, but recent reports indicate it is considering lifting
its ban on corn exports and may sell some corn in world
markets yet this summer.
Soybean export commitments were up marginally
from a year ago as of May 30. However, exports for the
marketing year ending this August are expected to register
a decline of about 2 percent. Sales are expected to soften
during the remainder of the summer as South American
soybeans move into export channels. In sum, gains in the
sale of soybeans to Asia and Africa have been offset by
smaller exports to Europe.

Corn production in Mexico not keeping pace with use
million metric tons
24

Consumption
18

Production
12

6

Imports
0
1991/92

’92/93

’93/94
marketing year

’94/95

’95/96*

*Forecast
Source: U.S. Department of Agriculture.

In comparison, U.S. soybean meal and soybean oil exports are headed for much steeper declines. Exports of soybean oil are expected to register a decline of 50 percent for
the marketing year ending this September, while meal volume is projected to drop by a fifth. The decline in soybean
oil exports is consistent with a world-wide decline in consumption and trade. Moreover, China sharply reduced its
purchases of soybean oil from the U.S. This alone was
enough to make a significant impact because China accounts
for over 50 percent of U.S. soybean oil exports. Meal exports
fell due to continued stiff competition from South America
as well as India. India’s soybean harvest made a strong recovery last fall and its processing industry was able to boost
meal exports by two thirds from the previous year.
Looking ahead to the next marketing year (1996/97),
early USDA projections indicate that exports of soybeans,
oil, and meal will post year-over-year gains, while corn exports will experience a decline. The USDA’s June revisions
to its 1996/97 projections moved soybean exports from a
moderate annual decline to a small gain. This change was
in response to the belief that cool, wet weather and the late
planting season will cause farmers to shift intended acreage from corn to soybeans. This will boost soybean supplies and weaken prices from what had previously been
projected. In contrast, corn exports may drop by nearly a
tenth. Important factors are the outcome of this fall’s domestic harvest as well as feed grain production in the rest
of the world. Other factors include the rate of economic
growth and meat demand in Asia and our trade relationship with China. Production and consumption trends in
Latin America will also continue to play an important role.
Reflecting the numerous uncertainties in these factors, the
1996/97 outlook for corn and soybean exports is highly

tentative and may change considerably as supply and demand conditions develop.
Exports of red meat and poultry got off to a strong
start in early 1996 and are expected to do quite well this
year. First-quarter pork exports were up nearly a fifth from
the prior year, with especially sharp increases in shipments
to Japan and Canada. Continued strong gains are expected
throughout 1996, leaving the annual level of exports over
four times larger than in 1990. Because of the steady gains
over this decade, the U.S. became a net pork exporter (in
terms of volume) in 1995, and the margin is expected to
widen this year and the next. Beef exports were boosted
in early 1996 by ample supplies and attractive prices, with
sales to Japan and Mexico posting sharp gains. Exports of
beef have also made strong gains throughout this decade,
doubling since 1990. Because of growing exports and declining imports, the U.S. will likely become a net beef exporter this year.
Poultry exports are expected to show a year-overyear gain of about a tenth this year. Remarkably, this
would be the smallest annual gain posted in this decade.
Similar to pork, poultry exports have increased nearly fourfold since 1990. First-quarter exports ballooned from a year
earlier on the strength of greater sales to Canada, Mexico,
and Singapore. In addition, exports to Russia increased as
exporters attempted to beat a threatened ban on poultry
purchases by the Russian government over health issues.
The situation was resolved, however, and Russia will likely
continue as our foremost market for poultry meat.
The U.S. trade balance in live cattle and hogs moved
in different directions early this year. Despite an improved
export picture for hogs, net imports (imports less exports)
during the first quarter were nearly double that of a year
earlier. This came about due to a large increase in imports
from Canada. In contrast, net imports of cattle dropped by
about a third during the first quarter, primarily as a result
of an improved trade balance with Mexico.
The Federal Agricultural Improvement and Reform
Act (FAIR) of 1996 specified changes to two of the bestknown agricultural export programs, the Export Enhancement Program (EEP) and the export credit guarantee program.
The EEP was modified in terms of the products it supports
and the approach to funding. The USDA may allocate up to
$100 million of EEP funding annually in the future to subsidize greater exports of processed—rather than bulk—products. Furthermore, the previous farm bill set minimum
spending levels which the USDA was charged with attaining, and which in practice were always exceeded. In contrast, the FAIR Act sets upper limits on spending. The
maximums for 1997 through 2002 range from $250 million
to $579 million and average about $472 million. This is

considerably less than recent EEP payments, which averaged $775 million from 1989 through 1994. Given that the
EEP has not been used in recent months to support commodity exports—thanks to strong U.S. sales and the European Union’s recent decision to discourage its own wheat
exports—the 1996 funding level of $350 million will not be
fully utilized.
The credit guarantee program was also revised to
provide a greater level of support for exports of processed
agricultural products. A minimum share of the credit guarantees are now to be set aside for processed products. The
proportion is to be 25 percent for 1996, and is to be raised
to 35 percent over the next three years. In comparison, processed products accounted for between 20 to 25 percent of
the credit guarantees used from 1989 through 1994. However, these minimums may be suspended if their use results in a reduction of bulk commodity sales. Furthermore,
credit guarantees may now be fully utilized for processed
products with up to 10 percent (by weight) foreign content.
In the past, the guarantees could not be use to finance any
foreign content of a product exported under this program.
Furthermore, the program funding level was kept at $5.5
billion annually. This seems adequate since actual usage so
far this decade has consistently fallen short of that amount.
Other changes to export programs are contained in the
FAIR Act. The Cottonseed Oil Assistance Program and The
Sunflowerseed Oil Assistance Program were not reauthorized. (However, the Dairy Export Incentive Program was
continued.) The Food Security Wheat Reserve—created to
meet humanitarian food needs in developing nations—was
renamed the Food Security Commodity Reserve and broadened to include corn, sorghum, and rice as well as wheat. In
addition, the USDA is charged with developing a trade strategy for agricultural products that reflects the opportunities
offered by recent trade agreements and the expected continued economic growth among Pacific Rim nations.
Mike A. Singer

AgLetter (ISSN 1080-8639) is published monthly by the Research
Department of the Federal Reserve Bank of Chicago. It is prepared by
Gary L. Benjamin, economic adviser and vice president, Mike A. Singer,
economist, and members of the Bank’s Research Department, and is
distributed free of charge by the Bank’s Public Information Center. The
information used in the preparation of this publication is obtained from
sources considered reliable, but its use does not constitute an endorsement of its accuracy or intent by the Federal Reserve Bank of Chicago.
To subscribe, please write or telephone:
Public Information Center
Federal Reserve Bank of Chicago
P.O. Box 834
Chicago, IL 60690-0834
Tel. no. 312-322-5111

SELECTED AGRICULTURAL ECONOMIC INDICATORS

Percent change from
Latest
period

Value

Prior
period

Year
ago

Two years
ago

Prices received by farmers (index, 1990–92=100)
Crops (index, 1990–92=100)
Corn ($ per bu.)
Hay ($ per ton)
Soybeans ($ per bu.)
Wheat ($ per bu.)
Livestock and products (index, 1990–92=100)
Barrows and gilts ($ per cwt.)
Steers and heifers ($ per cwt.)
Milk ($ per cwt.)
Eggs (¢ per doz.)

May
May
May
May
May
May
May
May
May
May
May

112
132
4.26
97.10
7.67
5.81
96
58.30
58.60
14.00
69.7

3.7
3.1
10.6
7.5
3.2
9.2
3.2
15.2
0.9
0.7
–9.5

12
13
76
6
38
58
9
55
–8
14
23

11
23
64
–2
13
69
–1
35
–16
9
19

Consumer prices (index, 1982–84=100)
Food

May
May

157
152

0.2
–0.2

3
2

6
6

Production or stocks
Corn stocks (mil. bu.)
Soybean stocks (mil. bu.)
Wheat stocks (mil. bu.)
Beef production (bil. lb.)
Pork production (bil. lb.)
Milk production* (bil. lb.)

March 1
March 1
March 1
April
April
May

3,799
1,190
826
2.15
1.48
11.5

N.A.
N.A.
N.A.
5.8
4.4
–1.6

–32
–13
–15
16
6
0

–5
16
–20
13
4
2

Receipts from farm marketings (mil. dol.)
Crops**
Livestock
Government payments

February
February
February
February

13,448
6,213
7,052
183

–22.7
–36.3
–7.5
N.A.

1
13
–1
–75

1
30
–5
–85

Agricultural exports (mil. dol.)
Corn (mil. bu.)
Soybeans (mil. bu.)
Wheat (mil. bu.)

March
March
March
March

5,470
214
94
110

3.3
31.0
12.8
16.5

9
9
13
3

40
92
74
7

Farm machinery sales (units)
Tractors, over 40 HP
40 to 100 HP
100 HP or more
Combines

May
May
May
May

5,980
3,899
2,081
494

–26.7
–8.7
–46.4
–26.0

3
–1
12
–20

17
10
35
–7

N.A. Not applicable
*22 selected states.
**Includes net CCC loans.
AgLetter is printed on recycled paper
using soy-based inks

Federal Reserve Bank of Chicago
Public Information Center
P.O. Box 834
Chicago, Illinois 60690-0834
312-322-5111

AgLetter

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