The Importance of Exports
Recently, a cross-functional team at Compeer completed the first phase of work studying agricultural exports across a host of Compeer's core commodities. Establishing a baseline understanding of export markets, trade agreements, various competing countries, and commodity specific export dynamics was the goal of this phase.
The study takes a comprehensive dive into the market interactions, specifically examines who the major U.S. agricultural trade partners are and forecasts where opportunities may lie. The team assessed factors across commodities including: corn, soybeans, dairy, pork, poultry, and tree nuts.
While trade to China captures the headlines, a closer look stresses the importance of markets in Canada and Mexico. (See chart 1.) Efficiency in transport to these neighboring countries, coupled with the United States Mexico Canada Agreement (USMCA) to facilitate trade helps to bolster these relationships. Of course, as is historically the case, specific commodities have their own market sensitivities. For example, soybeans, unsurprisingly, have a significantly greater reliance on exports to China than Mexico.
It's also worth noting that while the U.S. has several large trading partners (Canada, Mexico, China, EU, Japan), it has also developed relationships across a broad spectrum of countries. For example, China and Japan are large export destinations, but a host of other Asian countries combine to import products of equal value.
In fact, in assessing the importance of agricultural export markets a key factor is the growth rate. Chart 2 does a good job in laying out where export markets are expanding and where they've retrenched. Not surprisingly, China remains a strong growth market, though the 5.4 percent annual growth rate was hampered by the trade impasse in 2018-19. While continuing to grow, Canada and Mexico are more mature trade relationships, and were both affected by the negotiation of USMCA (resulting in tariffs and disruptions).
That said, where does the U.S. have opportunity to further expand? Southeast Asia, in particular, continues to show promise for U.S. ag exports. Trade to Vietnam, the Philippines, Malaysia, and South Korea has grown significantly. Others, including Egypt, have been strong growth markets recently. Continued expansion of exports to diverse marketplaces is integral in providing strong returns to producers.
Exports provide an important mechanism to clear the market of excess production. For some commodities, the impact is more significant than for others. As our work progresses, we look forward to providing a framework of understanding for the importance of exports to American agriculture.