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USDA Forecasts Smaller U.S. Agricultural Trade Surplus at $2.5 Billion

The U.S. agricultural trade balance is expected to stay tipped in U.S. ag exports favor with new forecasts calling for $63.5 billion in Fiscal 2006 exports compared with imports at $61 billion. The 2006 trade surplus drops to $2.5 billion, according to USDA's Economic Research Service quarterly Outlook for U.S. Agricultural Trade.

According to report authors Nora Brooks and Ernest Carter, a weak dollar and moderate global economic growth support the outlook. The agricultural trade-weighted dollar had depreciated around 17% by May of 2005 from its peak in February 2002. Over the same period, depreciation compared with competitor agricultural exports is over 30%. Despite a modest turnaround and dollar appreciation in early 2005, the U.S. dollar is likely to depreciate for 2005 as a whole due to the historically large current account deficit. "The weak dollar will help boost U.S. farm and manufacturing exports and dampen import growth over time. The dollar has been declining against the currencies of major OECD countries," the authors note.

"Higher cotton unit values are expected to raise exports $600 million. Reduced competition will increase grain volumes, but lower wheat prices will limit overall value increase. Little change in soybean volume is expected given record demand from China," the outlook reports.

The initial forecast for fiscal 2006 U.S. grain and feed exports is $15.8 billion, unchanged from the revised 2005 forecast. Lower unit values for wheat will largely offset some increase in grain volumes leaving total value unchanged. Wheat exports are expected to rise 1 million tons with reduced competition from Argentina and strong global demand for high-quality wheat. However, weaker unit value is expected due to large global supplies which will, in turn, slightly lower wheat export value.

Corn exports are expected to rise 4 million tons boosting export value about $300 million to $5 billion. The expectation of reduced competition from Argentina, China, and Ukraine would benefit U.S. farmers, but unit values remain weak due to large U.S. stocks. Despite stronger competition, U.S. corn exports are raised 500,000 tons due to increased sales to Canada, Mexico, and Egypt. The outlook for rice is positive with more competitive prices, continued growth in key overseas markets, and expected sales to the Middle East.

Fiscal 2006 U.S. agricultural exports are up $1.5 billion from the revised 2005 estimate. Higher unit values and volumes for many products raise horticultural products $1.4 billion. Rising $600 million, almonds account for nearly half the increase. Large gains are also expected for wine, essential oils, and highly processed fruit and vegetable products.

Strong U.S. consumer demand feeds higher imports

Fiscal 2006 agricultural imports are forecast at $61 billion, up $3.5 billion from the revised 2005 estimate. "This solid annual increase reflects higher prices and continued strong U.S. consumer demand," the report says. "Largest gains are forecast for fresh and processed fruits and vegetables and essential oils. However, smaller gains are spread across a broad range of import categories."

Fiscal 2005 exports are raised $1.5 billion from May's forecast to $62 billion, reflecting an improved outlook for cotton, grains and feeds, soybeans, and broiler meat. Fiscal 2005 imports are lowered to $57.5 billion, raising the trade surplus to $4.5 billion.