August 21, 2019

Focus on Trade

David J. Lynch reported today at the USA Today Online that, “The unstoppable force has stopped.

“With economies in the United States, Europe and Japan slowing simultaneously, the World Bank says that global trade will shrink next year by more than 2%. That will mark the first time in more than a quarter century that the seemingly inexorable tide of globalization will be in retreat.

“‘Trade tends to be extra responsive to changes in income. When the world economy contracts, trade contracts even more rapidly,’ says economic historian Douglas Irwin of Dartmouth College.”

The article indicated that, “The trade slump is both symptom and cause of the current global economic distress. For the U.S. economy, which just a few months ago was getting almost all of its forward momentum from net exports, ‘Trade will be a substantial drag on … growth,’ Ian Shepherdson, chief economist of High Frequency Economics, told clients in a recent research note.

“Compounding the recessionary gloom, trade is being choked by the credit crunch, which is drying up routine export financing. Entering 2009, the open trading system that has delivered low-cost goods to American consumers while lifting tens of millions of people in developing countries out of poverty faces the danger of protectionism in countries such as China, Russia, France and, potentially, the U.S.”

Later in the article, Mr. Lynch stated that, “Many industry representatives are apprehensive about the new year. With unemployment rising, the new Democratic-controlled Congress is expected to be less amenable to new trade agreements than was its predecessor. Public Citizen’s Global Trade Watch says the ranks of trade liberalization opponents had a net gain of 28 votes in the House and six in the Senate, figures business community representatives, such as the National Foreign Trade Council, dispute.

“Still, there is little argument over the fact that enthusiasm for further trade expansion along the lines of the agreements pursued by both parties in recent years is at low ebb. A trio of bilateral trade deals with Colombia, Panama and South Korea, continue to idle in Congress. And the Doha Round of global trade talks sputtered to a halt this month when WTO Director General Pascal Lamy opted not to convene a last-ditch negotiating session in Geneva.”

The article explained that, “The U.S. recession — the economy is shrinking in the fourth quarter by an estimated 4% to 6% — provides a potentially receptive environment for anti-trade measures. ‘As time goes on and the jobless rate goes up everywhere, we will see a growing trend toward protectionism,’ says Sung Won Sohn, an economist at California State University.

“The Doha Round’s failure also means countries will be free to impose tariffs that could shrink global trade volumes by $728 billion to $1.7 trillion, according to a new report by the International Food Policy Research Institute.”

DTN Editor-in-Chief Urban C. Lehner noted on Friday that, “Among those who voted for Barack Obama, some liked his tough talk on foreign trade. Others assumed he was just pandering for votes and, once elected, would govern as a more or less traditional free trader.

“Which group got it right? Agricultural producers have a stake in the outcome. A return to a more protectionist world would depress U.S. ag exports, which hit a record $115 billion in fiscal 2008. A failure to enact stalled, bilateral free-trade agreements would hurt less, but it would limit export growth.”

After additional analysis, Mr. Lehner stated that, “Where Barack Obama could pleasantly surprise is by exerting strong leadership to conclude the Doha round. As a policy wonk he knows economists consider broad, multilateral deals far superior to bilateral free-trade agreements. As a good politician, he knows Doha is less controversial than the bilateral deals, if only because so few Americans have heard of it.

“And whatever else he said about trade on the campaign trail, he did voice support for Doha.

“After seven years of negotiation, Doha has collapsed for what some observers fear might be the final time. If anyone can revive it, it’s a new American president who campaigned on the slogan, ‘Yes, we can.’”

In other trade news regarding agriculture, Bloomberg writer Tony C. Dreibus reported on Friday that, “Hog prices tumbled the most in six weeks on speculation that export demand for U.S. pork will decline. Cattle fell the most in five weeks.

“U.S. pork shipments in 2009 probably will fall to 4.1 billion pounds, down 8.9 percent from a November forecast, Department of Agriculture data showed on Dec. 11. Hog futures have declined 12 percent this month. Today [Friday] the USDA said about 30 U.S. slaughterhouses and meat plants, including some that process hogs, were banned from sending their products to Mexico.”

The Bloomberg article noted that, “‘The ham market is going to have to depend on exports,’ said Chris Lehner, the brokerage-division manager at CommStock Investments in Royal, Iowa. ‘Japan and China have said they’re going to cut back on pork exports, as has Russia. We need every export avenue, and if China cuts back as much as they said, that’s going to hurt hog prices.’

“Hog futures for February delivery fell 1.9 cents, or 3.1 percent, to 58.95 cents a pound on the Chicago Mercantile Exchange. The price earlier fell to 58.85 cents, the lowest for a most-active contract since Nov. 11. The price still has gained 1.9 percent this year.

“Cattle prices also slumped, dropping the most since mid- November on speculation that U.S. demand for beef will fall as the recession deepens, eroding consumer spending.”

With respect to agricultural trade and grains, Tom Polansek reported in today’s Wall Street Journal that, “The Black Sea region has muscled its way into the exclusive club of the world’s top wheat exporters and is expected to continue stealing business away from its most prominent member, the U.S.

The U.S. won’t lose the title of world’s biggest wheat exporter, but countries such as Ukraine and Russia are expanding their influence on the world market, analysts said. The region is now one of the top-five world exporters, a group formerly limited to the U.S., Canada, the European Union, Australia and Argentina.

The U.S.’s share of the world export market already has declined amid stiffer competition from the Black Sea region, where farmers have benefited from low production costs and continued investments in the agricultural sector, analysts said. More market share may fall away.”

Today’s Journal article added that, “The U.S. in 2008 is projected to export about 27 million tons of wheat, accounting for 22% of world exports, according to the USDA. That is down from about 27% a decade ago. Exports from 12 countries in the former Soviet Union are projected to account for about 23% of the world’s wheat exports this year, up from 3.4% in 1998, the USDA said.

“Russia alone is forecast to export more wheat than Australia and Argentina, typically the powerhouses of the Southern Hemisphere, though they have been hurt by drought. Russia’s exports are estimated at 14 million tons, compared with 13 million from Australia and 5.3 million from Argentina, according to the USDA.”

Meanwhile, weather conditions in countries that typically export large amounts of corn and soybeans appear to be influencing the domestic market price of some agricultural commodities.

Bloomberg writer Jeff Wilson reported on Friday that, “Soybean and corn prices climbed to the highest in more than seven weeks on speculation that dry, hot weather will increase stress on young plants in Brazil and Argentina, the two biggest exporters of the crops after the U.S.”

The article explained that, “Both corn and soybeans are heading for their first annual declines in four years.

Argentina is the biggest exporter of animal feed and vegetable oil made from soybeans and the second-biggest corn shipper. Brazil is the second-biggest exporter of soybeans and third-largest seller of corn, U.S. Department of Agriculture data show.”

Dan Piller noted on Friday at the Green Fields Blog (The Des Moines Register) that, “Corn jumped up 14 cents per bushel in trading Friday on the Chicago Board of Trade, reaching $4.12 per bushel. Soybean futures are up 36 cents per bushel to $9.62.”

Mr. Piller added that, “What appeared last summer to be a banner marketing year for corn and soybeans, which reached $8 and $16 per bushel respectively, turned sour as farmers completed the harvest last month. Corn plunged to a two-year low below $3 per bushel in early December and soybeans dropped below $8. But in the last two weeks the market apparently ‘tested its bottom,’ as they say in the trading pits, and decided that Iowa’s mainstay crops had been undersold.

Farmers say they need $4-$4.50 per bushel for corn and at least $9 to be profitable for soybeans at this year’s input costs.”

And with respect to crude oil, Brian Baskin reported in Saturday’s Wall Street Journal that, “Prices of crude oil rose after an OPEC member sharply cut exports, raising the prospect of tighter supplies early next year…The price of the light, sweet crude contract for February delivery rose $2.36, or 6.7%, to settle at $37.71 a barrel on the New York Mercantile Exchange.”

Keith Good

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