Global Economic Woes Cast Pall On Export Outlook

CHICAGO --With anemic U.S. grain and soybeans shipments repeatedly characterizing weekly export inspection reports and economic troubles blanching global growth prospects, an additional pall has been cast on the U.S. export outlook. Exports of U.S. wheat, corn and soybeans should drop 13%-20% year over year, according to the most recent USDA supply and demand estimates. But the drop is attributed to a mixture of a smaller corn harvest than last year, a 64% reduction in the year's soybean inventory and uncertain 2008 crop yields following an unusual growing season. For wheat, a more competitive marketplace has emerged as global supply recovers following international crop failures in past two seasons. The most recent USDA export inspections data, as of Sept. 25, show that weekly inspections of soybeans and wheat for export were down roughly 45% from the same time a year ago and corn inspections had fallen 11%. Analysts are uncertain as to what extent the weakening worldwide economy will offset the food demand of a growing world population. Given the relative inelasticity of food demand, most agree that production issues -- in terms of how much product is available for export and how much is entering the marketplace from competitors -- will drive the fate of U.S. exports. But recent prices "plunged an additional 75 million people below the hunger threshold, bringing the estimated number of undernourished people worldwide to 923 million in 2007," the U.N.'s Food and Agriculture Organization said in a September report, noting food prices rose 52% between since last year. The chaos rocking economies worldwide is "certainly not a positive, but the broader picture is a supply question," said Wachovia analyst Bill Nelson. "If you believe USDA stats, there's seldom any contraction for world demand for corn and soybeans. History is a pretty strong indicator that demand continues to increase." Exports play a leading role in support U.S. crops prices, representing as much as 44% of wheat's total market, said Michael Swanson, an analyst with Wells Fargo. And while corn exports slipped from as much as 28% as domestic needs for ethanol increased, about 16% is still shipped abroad, as are about 34% of U.S. soybeans. "To some degree, we've restricted exports because of lack of availability," Swanson said. "The biggest driver, of course, is where energy prices go." As oil prices go down, corn could follow. "If the prices of oil fall, we don't have any floors under these crop prices anymore," said Daryll E. Ray, director of the Agricultural Policy Analysis Center at the University of Tennessee. With ethanol margins under intense pressure Swanson sees as "quite problematic" the USDA's prediction of a 1.1 billion bushel increase in corn use for ethanol. "We've seen gasoline consumption drop; ...you can't have high corn prices and low ethanol prices it just doesn't cash flow," Swanson said. The U.S. dollar is another barometer of export potential. The dollar index rallied recently, but at around 70, it's still low comparatively low to the levels of around 120 hit in the last decade, said Nelson. "The low 80s, 70s corresponds with firm prices for grain We consider it a positive environment for exports," he said. "There's the potentiality for U.S. soybeans to do better than the USDA expects, which is about 1 billion bushels," Nelson said. "We 'found' 65 million more bushels today the equivalent of a little less than a bushel per acreage yield change. With the potential of the added supply, maybe we can expect to export 1.5 billion bushels. It's still less than last year. The [2008] crop, as we believe today, was hurt by the floods and didn't yield well." Exports will be constrained by supply, not financial capacity, he said. "When you look back at these periods of recession through history and it's hard to see any impact [on exports]. Effects are more obvious in drought or major events that really restrict supply," Nelson said. Especially in corn and soybeans, low stocks should support the prices at levels where farmers find incentive to plant, analysts say. "I suspect that we will be seeing, if not this year then next, increasing in production worldwide in the grains responding to higher prices," Ray said. "John Deere, Cargill, Monsanto and Pioneer -- all of them now have operations in countries currently producing lots of agricultural products or getting ready to gear up to produce." The mid-to-long term export outlook "not as much of a problem of under supply as over supply," Ray said. All analysts add the caveat that weather issues can dramatically alter supply. As for the fundamentals and the increasing world population and standard of living---"it's very easy for an economist to turn that into an optimistic story with regard to what it means for U.S. agriculture," Ray said. "It does make sense and it is logical, but it's easy to overdo it. If you don't have food, you get riots in the streets, but I don't think it's reasonable to expect [developing countries] to be dependent on us," he said. "China and India have been going to other countries and securing land -- usually renting . And I wouldn't underestimate the ability of Chinese to boost production on the [domestic] acreage they have."