Ag Trade Balance Jeopardizes Farm Support

Countercyclical payments kick in when prices are low. But that's also when the agriculture trade surplus is smaller or nonexistent. Compiled by staff

Published on: Dec 3, 2004

Government payments have been down significantly the past several years thanks to strong commodity prices. In addition, agricultural exports normally outnumber agricultural imports giving political capital to rural Congressional leaders for support of farm programs.

But in 2005 Congressional hearings will begin to look at the next farm bill. And unlike 2004 when the agriculture industry saw a surplus of $9 billion in the trade balance, USDA is forecasting fiscal year 2005 export sales to be down.

Countercylical payments provide the safety net farmers desire in low price years. But in those same low price years the government will pay out more, and have fewer dollars brought in from total export sales.

Sales are forecast to be $56 billion, down from the record of $62.3 billion set in FY 2004. The drop in export sales is mostly due to record U.S. crop production, which means lower prices for grains, oilseeds and cotton, and to increased foreign competition due to larger supplies all around the globe. The FY 2005 forecast, if realized, will be the fifth highest year for U.S. agricultural exports.

According to the U.S. Grains Council (USGC) Global Update, NAFTA partners are expected to rank as the United States’ top two markets. Canada will remain the No. 1 market for U.S. agricultural products at $9.7 billion, while sales to Mexico of $8 billion are expected to surpass those to Japan of $7.7 billion.

The European Union (EU) at $6.5 billion and China at $4.6 billion will round out the top five markets. "U.S. feed grains are again projected to have a positive balance in U.S. trade," says Ken Hobbie, USGC president and CEO. "The value of the U.S. corn trade balance is almost $5 billion."