Canada, runner-up for most of this decade, has replaced China as the top market for U.S. farm exports because of the high tariffs that have discouraged sales in the Sino-U.S. trade war, said the Agriculture Department on Wednesday. China will finish this year as the No. 3 customer for U.S. ag exports, behind Mexico, and it will slip to No. 5, trailing the European Union and Japan, in fiscal 2019, when purchases will be barely half of this year’s tally.
“Agricultural exports to China are forecast down $7 billion from fiscal 2018 to $12 billion as soybean sales are expected to be sharply lower due to retaliatory tariffs, which also curb demand for other products,” said USDA analysts in their first forecast of exports for the fiscal year that starts on Oct. 1. They slashed their China forecast for this year by 12 percent, from a May estimate of $21.8 billion, because of waning sales as the trade war flared.
By contrast, exports to Canada and Mexico are expected to be steady, despite ongoing trade disputes. The USDA forecast coincided with the White House announcement of a preliminary trade agreement with Mexico on Monday and a resumption of negotiations with Canada for a new NAFTA. Between them, the North American neighbors account for one-third of U.S. food and ag trade.
Although sales to China are down sharply, the USDA pegged overall exports this year at $144 billion, the second-highest total ever. Exports were forecast to hit $144.5 billion in 2019. Strong economic growth worldwide, running at 2 percent or slightly higher, will fuel consumer demand for food, it said. The United States is the world’s largest agricultural exporter.
Economist Pat Westhoff of the University of Missouri said the USDA forecast “is a reminder that trade … depends on a lot more than trade policy.”
Drought in Australia and Europe, for instance, will create an opening for U.S. wheat exports, and higher corn prices will offset the effect of fewer sales, said the USDA. Former USDA chief economist Joe Glauber pointed to estimates in other USDA reports that in most cases, U.S. soybeans will find a home, even with China closing its doors to them.
In 2000, China accounted for only 2 percent of U.S. export sales, but by 2011, fueled by torrid economic growth, it had become the top customer. It stayed at No. 1 for five years before Canada reclaimed the top spot in 2016, but was No. 1 again in 2017. “China’s prominence in U.S. agricultural markets is also highly specific, with a strong concentration in oilseeds, livestock feed products, and cotton,” wrote two Iowa State University economists in 2015.
Compared to the meteoric rise in China’s purchases, Canada has been a steady customer, with purchases running between $20 billion and $21.8 billion annually since 2012.
In recent years, one of every three bushels of U.S. soybeans went to China. Soybeans accounted for $12 billion of the $22 billion in U.S. farm exports to China last year.
Since the 1970s, exports have been viewed in farm country as the path to prosperity. Agriculture Secretary Sonny Perdue took office with a pledge to promote exports, which generate 20 cents of each $1 in farm income. “I’m a grow-it-and-sell-it kind of guy,” Perdue has said repeatedly.