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Federal Reserve Bank of Dallas FARM and RANCH BULLETIN WORLD MARKET FOR U.S. FARM PRODUCTS SHIFTS United States agricultural exports have expanded significantly in the past decade, presenting an over all picture of rapid growth. But throughout this period, irregular world supply, changing policies in the United States and abroad, shifting demand, and general economic activity caused significant year-toyear fluctuations in the market, as reflected in the composition and distribution of U.S. exports. In the early 1960’s, there were major commodity surpluses both in the United States and abroad. This stimulated major Government shipments under such programs as Public Law 480. These shipments peaked at $1.6 billion in 1965. Most com mercial sales were to Western Europe and Japan. In the second half of the 1960’s, most surpluses declined to more manageable levels and shipments under Government programs also declined. Com mercial sales, led by soybeans, increased. With the implementation of the Common Agri cultural Policy by the European Economic Com munity (EEC) in the 1960’s, the share of exports to member countries declined. However, the expan sion of the Japanese market more than offset the relative decline in the European market. Through out the decade, U.S. shipments to the Communist countries of Eastern Europe were nominal and fair ly sporadic. No shipments were made to China. Changes in the seventies One of the biggest changes will come at the be ginning of 1973, when Great Britain, Ireland, and Denmark enter the EEC. These countries received over $550 million worth of U.S. agricultural exports in fiscal 1972. Partial loss of this market and in creased competition as other traditional suppliers look for new markets are real possibilities. Japan, the largest importer of U.S. agricultural products, has shown some indication of seeking alternative sources of supply. This new turn is due, in part, to the recent dock strikes in the United States that caused some supply problems for Japan and were probably responsible for the slight down turn in shipments to Japan last year. Many of the less developed countries are becom ing increasingly self-reliant. India has made signifi cant progress toward self-sufficiency in wheat AVERAGE DISTRIBUTION OF U.S. AGRICULTURAL EXPORTS COMMUNIST COUNTRIES 1 9 6 0 -6 4 1 965-69 NOTE: For fiscal years ending June 30 SO UR CE : U.S. De pa rtm ent of Agric ultu re 1 970-72 COMMERCIAL AND GOVERNMENT SHARES OF AGRICULTURAL EXPORTS MILLION DOLL A RS 9 , 0 0 0 ------------------ 0 ’6 2 ’6 4 ’6 6 ’6 8 ’7 0 ’7 2 NOTES: For fis ca l y e a rs e n d in g June 30 1 9 7 2 f i g u r e s p r e li m in a r y SOURCE: U.S. D e p a r tm e n t of A g r ic u l tu r e production, and many Asian countries are now pro ducing much more of their own rice. Such develop ments lower demand for agricultural imports. Recent trade negotiations with the Soviet Union have assured significant U.S. export of agricultural products to that country through 1975. Soviet pur chases of U.S. farm products jumped from an annual average of $18 million in the second half of the 1960’s to $136 million in 1971-72. Agricultural ex ports to the USSR are expected to exceed $1 billion this marketing year. In addition to the improved trade climate, short crops in the USSR were a major stimulus to the recent surge in agricultural imports by that country. But short crops cannot be expected every year, nor can the Soviets be expected to continue using their limited foreign exchange for consumption purchases rather than capital purchases. It must also be recog nized that the USSR is a potential competitive ex porter of the same commodities it is now importing. The recent sale of 15 million bushels of wheat to China was the first U.S. commercial agricultural export to that country in 23 years. China is the world’s most populous nation and has the greatest need for food. In 1970, the U.S. Department of Agriculture estimated that China needed an addi tional $5 billion worth of foodstuffs annually to bring the average diet to an adequate level. This impressive potential of the Chinese market is severely limited by the lack of effective demand and the normal preference of a developing country for capital goods over consumer goods. Recent re ports indicate that the agricultural sector of China may be gaining momentum. While factual reports are sketchy, China has the potential to greatly expand its agricultural output. And the desire for foreign exchange could stimulate agricultural ex ports. Proximity to Japan makes China a potentially strong competitor in this agricultural export mar ket, especially since Japan is looking for new sources of supply, as well as new export markets. The future export m arket In spite of record agricultural exports of $7.8 billion in fiscal 1971 and $8.1 billion in fiscal 1972 and record shipments of wheat this year, the future of U.S. agricultural exports is not clear. Agricultural trade remains more structured and more burdened with regulations than nonagricultural trade. Ad vances remain slow, difficult, and far from com prehensive. Shipments are also subject to foreign de mand and limitations in credit and foreign exchange. The world market for U.S. agricultural products has changed. The future extent and continuity of this market remain subject to many factors, such as trade agreements, international monetary ar rangements, political climate, and weather condi tions. The United States appears to be in a good position to participate effectively in world agricul tural trade, and the widened Communist market significantly increases the total market for U.S. products. But the United States should be pre pared to face strong competition. U.S. WHEAT SUPPLY AND DISAPPEARANCE BIL LI ON BUSHELS 2.5 ------------------------------------------------------------------------------ WHEAT MARKET STRONG BUT CHANGEABLE World demand for wheat is expected to push U.S. wheat exports to a record 1,125 million bushels or more in the current fiscal year, following a record domestic use of 874 million bushels last year. Clearly, the wheat market is presently very strong. But this strength cannot be interpreted as an on going trend without careful consideration of the many factors involved. The market for U.S. wheat is really two distinct markets—the domestic market, which took an an nual average of 707 million bushels between 196263 and 1971-72, and the export market, which averaged 711 million bushels in the same period. The domestic market can be further broken down into food, feed, and seed markets. Exports—pri marily for food use—include commercial sales and shipments under Government programs. Domestic demand for food and seed remains fairly stable, but demand in the domestic feeding and export markets is subject to changeable external factors. Demand for feed wheat is subject to the relative prices of wheat and the other major feed grains. In 1970, 1971, and early 1972, for example, wheat prices were comparatively low, and wheat feeding increased significantly, reaching a record 287 mil- NOTES: F i s c a l y e a r s end ing June 30 1972 and 1 9 7 3 f i g u r e s e s t im a t e d SOURCE: U.S. D e p a r t m e n t o f A g r ic u l t u r e lion bushels in 1971-72. The average feed use for wheat was 140 million bushels from fiscal 1966 to 1970 and only 40 million bushels from fiscal 1961 to 1965. Critical domestic needs have been estimated at not more than 700 million bushels a year. Any off take above these levels could probably be traced to comparative price advantages of wheat over other feed grains. This was certainly the case in the past year, when offtake reached 874 million bushels. The export market has traditionally taken over half of all U.S. wheat. But this market is subject to significant and rapid shifts. Exports averaged more than 710 million bushels between fiscal 1963 and 1972, although they had dropped to 544 million bushels in 1969 from a high of 867 million in 1966. Until fiscal 1969, most wheat exports were made under Government programs, such as Public Law 480. Since that marketing year, however, commer cial shipments have accounted for more than half of annual wheat exports. This shift in emphasis was the result of a general cutback in Government pro grams; increased production in many of the coun tries that were receiving concessional shipments, especially India; and growth in commercial demand. Wheat demand is broadly based but production is fairly concentrated, and there are very few net exporters. Ten countries generally account for at least three-fourths of the world’s wheat production. And only six countries—Argentina, Australia, Can ada, France, the Soviet Union, and the United States—generally account for at least 90 percent of world wheat exports. The United States exports the largest volume of wheat and generally ships over half of its producBANKERS DISCUSS AGRICULTURE “New Dimensions in Agricultural Banking” is the theme of the 21st National Agricultural and Rural Affairs Conference of the American Bankers Asso ciation meeting November 12-15 in Denver, Colo rado. Further information may be obtained from Deri Derr, Director, Agricultural and Community Banker Division, American Bankers Association, 1120 Connecticut Avenue N.W., Room 500, Wash ington, D.C. 20036. tion to foreign markets. Canada and Australia ex port more than 70 percent of their production, and Argentina exports more than 40 percent, on average. France exported an average of 30 percent of pro duction and the Soviet Union an average of 7 per cent during the 1960’s. But their markets are nar rower than those of the other major exporters. France is a member of the European Economic Community and sells most of her wheat within the EEC. The Soviet Union sells mainly to other Com munist nations and countries in the Middle East. The current surge in U.S. wheat exports can be attributed to a combination of several factors. Stocks of grain in Argentina, Australia, and Canada are down this year due to production cutbacks, poor crops, and unexpectedly high export demands late last year. The unusually large import demands of the Soviet Union resulted from unfavorable weather and poor yields in that country this year. The record U.S. exports anticipated for this mar keting year, then, do not represent a stable trend. A major concern is how this surge in exports will affect the domestic market. The current crop is esti mated at 1,560 million bushels. Combined with the July 1 carryover of 865 million bushels, this means that the United States has a total supply of 2,425 million bushels for the 1972-73 marketing year. If exports reach 1,125 million bushels and do mestic offtake reaches the 767 million bushels pro jected by the U.S. Department of Agriculture, ending carryover would be 533 million bushels— sharply lower than last year’s carryover and below the ten-year average of 817 million bushels. But this is still well above the 425 million bushels carried over for the 1967-68 marketing year. This should be a satisfactory carryover and could supply do mestic needs for at least eight months. Prepared by Dale L. Stansbury
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