Reduced Global Grain Supply and Drought Conditions in Argentina, Brazil, Canada, Mexico, Northern Europe, FSU and Australia Are Bailing Out US Grain Exports During Trump’s Trade War

August 20, 2018
By Gale Lush

WILCOX, NE—August 20, 2018: “U.S. farmers and farm organizations should analyze world grain conditions and supply constantly in order to have an honest assessment of the real grain export and commodity price impact of the current tariff trade war that is underway,” said Gale Lush, Chairman of the American Corn Growers Foundation (ACGF), a corn, soybeans and wheat farmer from Wilcox, Nebraska. “On August 10 the U.S. Department of Agriculture World Agricultural Outlook Board (USDA-WAOB) released its world supply and U.S. supply and use projection for grains for marketing year (MY) 2018/2019. The report projects world grain supply at 3,199 million metric tons (MMT), down from 3,217 MMT in MY 2017/18, a reduction of 18 MMT, or about 685 million bushels. MY 2017/18 estimated total world grain supply was down from 3,234 MMT in MY 2016/2017, a reduction of 35 MMT, a reduction of about 1.3 billion bushels. Meanwhile, U.S. MY 2018/19 grain supply has increased to 537 MMT, up from 527 MMT in MY 2017/18. That 10 MMT (about 380 million bushel) U.S. grain supply explains some recent news reports of higher or strong U.S. grain exports in the face of the Trump Administration trade war impact. The cumulative impact of the total world grain supply decrease simultaneous with a U.S. grain supply increase is just part of the reason exports have remained stronger than otherwise would be the case. Foreign buyers anticipating the coming tariffs and trade war also bought ahead which has likely artificially propped up U.S. grain exports in the past few months. In the absence of foreign drought conditions U.S. corn, wheat and soybean exports would have likely performed at a much lower level. The defenders of the current U.S.-imposed tariff trade war might say grain exports were not hurt. Low U.S. farm-level commodity price reality combined with the fact that U.S. soybean prices have traded at a $2.00/bushel discount to Brazilian soybeans says otherwise.”

ACGF Policy Analyst Dan McGuire pulled the following data from the August 10, 2018 USDA-WASDE report:

  • World 2018/19 wheat supplies are reduced this month by 7.1 million tons, primarily on lower EU production. Continued drought conditions in several northern European countries, most notably Germany, resulted in lower production, down 7.5 million tons to 137.5 million. This would be the lowest EU wheat production since 2012/13. Projected global 2018/19 trade is lower, mainly on reduced EU exports, which are down 4.5 million tons to 23.0 million, the lowest in six years.
  • This month’s 2018/19 foreign coarse grain outlook is for lower production, reduced trade, and slightly lower stocks relative to last month. EU corn production is lowered, mostly reflecting reductions for France and Germany that are partially offset by increases for Romania and Bulgaria. Brazil corn production is lowered based on updated expectations for second-crop corn area that will be planted beginning early 2019.
  • Major foreign coarse grain trade changes for 2018/19 include corn export reductions for Brazil, Zambia, and South Africa that are partially offset by increases for Serbia, Ukraine, and Moldova. Brazil’s corn exports are lowered for 2017/18 based on lower-than-expected shipments observed for the local marketing year beginning in March 2018.

McGuire cautioned, “policy analysts need to pay attention to the export categories of ‘Outstanding Sales’ vs “Accumulated Exports’. Accumulated exports have been shipped (actually exported) while Outstanding Sales may or may not actually get shipped this marketing year. Those sales could be cancelled or rolled into the next marketing year. In the case of corn, we won’t know until a couple of weeks after the end of the current marketing year which ends August 31. As of August 9, 2018 USDA-FAS export data reports U.S. accumulated corn exports at 53,441,100 MT compared to 52,990,700 MT the same week one year earlier. That means that accumulated (actual exports) corn exports are only about where they were last year at this time. However, the same report shows that outstanding sales of U.S. corn as of August 9 are at 6,849,300 MT compared to 3,482,500 MT one year ago, a difference of 3.4 MMT or nearly 133 million bushels.”

“If all those outstanding sales become accumulated (shipped) corn exports by August 31 corn exports will nearly reach the USDA estimate of 2.4 billion bushels this marketing year. Then the analysts can try to sort out how much of an impact foreign drought and reduced foreign grain supplies, that otherwise would have been competing with U.S. grain, facilitated U.S. exports and how much greater U.S. grain exports might have been without U.S. imposed trade tariffs and blowback. How many more millions of acres of soybeans might Brazil bring into production permanently and double crop with corn? Increased production without drought conditions leads to major competing foreign grain production for years ahead. That may well be the real high cost impact of this tariff trade war,” said McGuire.

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