Farmers could see tighter profit margins in 2023 with some countries reducing their import of U.S. products. This will result in decreased demand and could cause the high commodity prices seen in recent years to moderate, ag experts say.

According to the U.S. Department of Agriculture’s latest agricultural trade outlook for 2023 released on Feb. 23, ag exports are expected to be down $5.5 billion in fiscal year 2023, to $184.5 billion, compared with the previous report released in November. Imports are forecast to remain unchanged at $199 billion.

Chad Hart, an agricultural economist at Iowa State University, said global inflation has been a factor in the pressures being felt on U.S. exports around the world, as has geopolitical uncertainties interrupting some trade flows, including the ongoing war in Ukraine and tensions with China.

“And as all this is occurring, customers are being more cost-conscious,” Hart said. “What I’m seeing in the ag space is customers are starting to trade down or look for those bargains to meet their needs.”

One example is decisions by livestock producers to use wheat for feed rather than corn because wheat is less expensive, Hart said.

China, one of the U.S.’s major export markets, is pulling back in some areas because the first phase of its trade agreement with the U.S. has passed.

“Within phase one China agreed to buy a certain amount of products from the U.S., but now that agreement is off, they’re shopping around and they’re finding bargains in other countries so they’re moving some sales that went to the U.S. the last couple of years to other countries this year,” Hart said.

There are emerging markets, such as Central America, South America and Southeast Asia that can help offset some of those losses, depending on the commodity, Hart said.

“The U.S. government has worked really hard to establish trade agreements with a lot of countries in Central and South America, and where we have been able to establish links with those countries we’ve seen our trade balance with them grow significantly,” he said. “The challenge with the corn market is that it takes the addition of several emerging markets to come even close to trying to even match movement by China.”

There were records set in 2021 and 2022 in terms of export value in some commodities, such as corn and soybeans. While fewer bushels were shipped, prices were high enough to make those commodities more valuable on the export market, Hart said.

“So the last two years have been spectacular in terms of our export demand, and what we’re seeing thus far into 2023 is that we have seen those international sales pull back significantly,” he said. “We’re seeing less quantity but we’re also not getting the price rise large enough to match that loss in quantity. So not only is our quantity slipping, but our overall export value seems to be slipping as well.”

But that’s not all bad, Hart said.

“It’s not a good sign but it’s not an incredibly bad sign either,” he said. “That record export demand has led to tremendous net farm income over the past couple of years. That net farm income is lower but it’s still at a relatively strong level.”

He compared it to the balancing act the Federal Reserve is trying to do with inflation.

“Here in the ag economy, we’re sort of looking for the same thing, we’re looking at a soft landing and as we see our exports weaken, that’s going to bring down our farm incomes. But hopefully it’s happening in such a way that net incomes will remain relatively healthy,” Hart said. 

Rebound expected

Hart said while the global export market is pulling back now, he anticipates it will bounce back in two to three years.

“The past couple of years have been fantastic, it’s been a heck of an export pace, but it’s unsustainable,” he said. “I think the global market is pulling back right now, but the engine that helped drive that growth, I would argue, is still available. It’s just not as strong as it’s been, and that leads me to think as we’re looking forward two to three years, we will see our export markets bounce back.”

That growth is shifting to a broader array of regions, including southeast Asia, India and Africa.

“That’s going to be the sort of change here — the emphasis used to be all on China. But now China is still in the mix but we’re adding those additional countries that open up opportunities we didn’t necessarily see 10 to 15 years ago,” Hart said.

Pork producers feeling effects of Chinese reductions

Courtney Knupp, vice president of international market development for the Des Moines-based National Pork Board, said the U.S. exported 2.67 million metric tons of pork in 2022, with an export value of $7.68 billion, making it a top-three year for U.S. pork exports.

Despite that, exports to China dropped 11% in volume and 5% in value in 2022 compared with 2021, she said. Compared with the five-year average, the volume of pork exports dropped 1% in 2022 but increased 8% in value, including exports to China. Excluding China, volume increased 1% and value jumped 16%, Knupp said.

Factors affecting the pork industry include a slight uptick in domestic demand and the stagnation of herd sizes, she said.

Factors influencing U.S. exports to China are that the country has rebounded from its African swine fever outbreak and is coming out of its COVID lockdown. That changed their consumption trends, causing a reduction in the amount of pork they import by 10% in 2022, Knupp said.

“China’s the largest consumer of pork in the world, and we don’t have a great trading relationship with them right now for things beyond agriculture’s control, so those are the headwinds we’re watching,” she said.

Knupp said domestic consumption of pork has risen as poultry prices increased because the Avian flu reduced flock sizes. Higher beef prices caused by smaller herds has also created greater demand for pork in the U.S., she said.

“We were just priced competitively and I think we’re seeing more products, such as ground pork and the pork loin versus the muscle cuts,” she said.

The U.S. harvests roughly 130 million pigs a year, with Iowa having about 28% of the country’s hog supply at roughly 8 million pigs. About 27.5% of pork produced in the U.S. is exported overseas, Knupp said.

In 2022, Mexico for the first time became the leading export market for both volume and value of pork, which Knupp said was the direct result of the U.S. Mexico, Canada Free Trade Agreement.

Knupp said there are emerging markets with the full implementation of the Central America-Dominican Republic Free Trade Agreement.

“Those are markets where we have great access and get our products there very cost-effectively, but with global shipping challenges that’s another plus,” she said. “We’re really focused on the Western Hemisphere.”

Knupp and her colleagues are watching the cost of seed because it’s a large input for producers. Seed can give the U.S. a large competitive advantage because a lot of other countries have to import their feeds, which can be costly when you add the expense of shipping. 

The cost of energy is also being watched closely, she said.

“The cost of energy is huge and building materials are really expensive,” Knupp said. “That’s why we’re not seeing a large expansion, because those costs are really high compared to what it was the past couple of years and may not make good business sense.”

Increased domestic demand for soybean oil affecting exports

Grant Kimberley, senior director of market development at the Iowa Soybean Association, said U.S. soybean exports increased 25% in 2022 compared with 2021, increasing from $27.52 billion to nearly $34.5 billion. Iowa produces about 14% of the nation’s soybean crop, with 587 million bushels harvested last year.

When you talk about soybean exports, it’s broken down into three categories: whole soybeans, soybean meal and soybean oil. In 2022, 2.1 billion bushels of soybeans were exported. The U.S. exported 12.27 metric tons of soybean meal and about 800 metric tons of soybean oil.

Demand projections show slight increases in whole soybean and soy meal exports, but a decline in soybean oil. The reason for the decrease in soybean oil exports is the growth in biofuels, including biodiesel, renewable diesel and sustainable aviation fuel, although Kimberley said that is just getting started.

“So there’s going to be more demand for keeping some of these vegetable oils and animal fats and recycled greases that go into biofuels here domestically so we’ll keep more of that here and export a little less of soybean oil,” he said.

That will likely result in more soybean processing plants to increase capacity to handle that demand, Kimberley said.

He said a growing middle class around the world is contributing to increased demand globally for soybeans.

“When that happens, people eat better and eat more protein in their diet,” Kimberley said, noting that there has been increased livestock production, including poultry, pork and aquaculture globally.

“That’s going to use more things like soybean meal and other products,” he said.

The U.S. is joined by Brazil and Argentina as top soybean-producing countries in the world.

Argentina is having one of its worst droughts in 60 years, so they will take a major hit in its soybean production, which may increase demand for soybeans produced in the U.S. and Brazil.

“Brazil has grown enough that maybe they’ll offset a good share of that, but with demand continuing to grow, it’s not what the market anticipated,” Kimberley said.

He said the war in Ukraine, one of the world’s largest sunflower oil producers, is disrupting the country’s exports of the oil, which has helped increase demand for soybean oil. It also is a major producer of wheat and corn, so those commodities also are affected, Kimberley said.

Kimberley said the increased demand for soybean oil for biodiesel and other renewable fuels, will create better cash price opportunities for farmers and job opportunities in communities where processing plants will be built.

That could require increased job training programs for jobs that range from technical and science-based positions to marketing, economics, logistics and procurement, he said.

Kimberley said farmers are closely watching China as it comes out of its COVID lockdown and how tensions between that country and the U.S. are resolved, as well as their hog production.

Connecting local farmers to global markets

Hart, the ISU farm economist, said Iowa’s strong agricultural culture and farmers’ access to grain elevators helps connect them to global markets, putting more money in their pockets and into the economies of the communities where they live.

“When you look at the high corn and soybean prices we’ve enjoyed over the past couple of years, we don’t get those high prices unless we see those export values around the globe,” he said. “There’s definitely a strong connection between our ability to market our crops and livestock worldwide and the price we see at our local elevators and feedlots here in Iowa. Yeah, when we raise our corn, we market it at the local elevator. But that local elevator connects us to the global market, and thank goodness we have that connection because that’s what leads to the better prices and profits we’ve experienced over the past couple of years.”