U.S. agricultural exporters weathered a tough year in 2018, and the forecast looks no better for the remainder of 2019.
According to PIERS, the trade statistics service of IHS Markit, total U.S. exports were down by 0.2 percent last year. Results to Asia, however, were worse: a decline of 4.2 percent to the continent as a whole, and a whopping 25.4 percent to China.
That last number was the result of tariffs imposed on Chinese goods by the Trump Administration. Especially hurt were U.S. agricultural exporters such as soybean growers, who suffered a 56.5-percent decline in sales to China in 2018. Shipments of cotton, another leading source of ag exports, saw a 14.1-percent increase in sales to the world, but a 4.3-percent drop to China.
From a long-term perspective, the soybean situation might be even worse than the numbers suggest. Mike Steenhoek, executive director of the Soy Transportation Coalition, said China usually imports around 35 million metric tons of U.S. soybeans in the period running from Sept. 1 through Aug. 31 of the following year. As of March of 2019, however, China had only purchased 10 million metric tons for the marketing year that began last Sept. 1, and the rival South American harvest was just coming on line. U.S. soybean exporters customarily sell 80 percent of their harvest between September and February, Steenhoek noted, speaking on a panel at TPM 2019 in Long Beach, Calif., the annual conference sponsored by IHS Markit and the Journal of Commerce.
Even if the Trump tariffs are lowered or cancelled, the ability of American soybean exporters to quickly regain the lucrative Chinese market is in question. “Will this market opportunity snap back like a rubber band?” Steenhoek asked. “I think not.”
The problem for U.S. soybean exporters is that there isn’t another market the size of China to make up for lost sales to that country, said April Zobel, manager of export traffic with agribusiness The Andersons, Inc. Meanwhile, warehouses are filling up. “Getting new demand forward is really challenging,” Zobel said.
The dilemma has affected the fortunes of ocean carriers as well. Lawrence Burns, senior vice president of trades with Hyundai Merchant Marine, said the falloff in agricultural exports has worsened the line’s equipment imbalance problem. Carriers count on at least some export loads to reposition their containers back to Asia, where they can be loaded with Chinese goods destined for the U.S. — a trade that far exceeds volumes moving in the other direction.
Now, with U.S. exporters shifting their focus to Southeast Asia and other alternatives to China, carriers like Hyundai find themselves having to lift a container twice — once to the new export market, and again back to China for its return to the U.S. “It’s been quite a struggle for us,” said Burns.
The restoration of normal levels of U.S. agricultural exports to China doesn’t mean a return to business as usual is in the cards. Growers are looking for new markets for the long term. “We’ve been working to diversity our customer base for a long time,” Steenhoek said, adding that farming “is not like owning a cupcake shop. If there’s a sudden dramatic decrease [in demand] for chocolate and an increase in vanilla, all you have to do is go to the grocery store, and the next day you’ll be fully aligned with the new demand paradigm. If it’s a farming operation, what do you do — switch to broccoli? You don’t really have that ability.”
Export sales of agricultural goods requires long-term planning, including contracts with ocean carriers and railroads. It’s tough to commit to a set volume of cargo when confirmed sales orders aren’t in place. Said Zobel: “Uncertainty is really the hardest part.”
When it comes to dealing with ocean carriers, U.S. exporters are accustomed to playing second fiddle to importers, who generate far more shipments at much higher value. At the same time, exporters are expected to pay their share of increased carrier costs, such as those expected to result from the mandated shift to low-sulphur vessel fuels.
Meanwhile, foreign agricultural producers are upping their game. With its tropical climate and long growing season, Brazil can manage two crops of soybeans a year. And the Chinese reportedly are investing in Brazilian infrastructure to boost activity in that market.
Still, growing demand for agricultural imports in developing parts of the world is likely to exceed the transportation infrastructure needed to support it, at least for awhile. Many of the newest containerships in service are too large to call all but a handful of the world’s largest ports. So U.S. producers could find themselves limited in their access to new markets.
As always, goods flowing into the U.S. will dictate carrier priorities. Said Burns: “We’ve never designed a service to handle exporters. It’s all about the headhaul.”
The sole long-term solution for shippers and carriers alike is a sustainable rise in U.S. sales to foreign markets. At the moment, more than half of the containers going back to Asia for import loads are empty, according to Jeremy Nixon, global chief executive officer of Ocean Network Express. “We need to get U.S. exporters back into the global market,” he said.