The Russian invasion of Ukraine will have, at most, a muted effect on U.S. food prices, said Agriculture Secretary Tom Vilsack on Thursday. “We have tremendous (domestic) production capacity,” he told reporters attending the USDA’s annual Agricultural Outlook Forum.
The Agriculture Department said that farm income would be far above average this year, with mammoth corn and soybean crops on the horizon, and that exports would be the highest ever. But the projections were drafted before Russia attacked Ukraine, upsetting global markets. Wheat prices jumped by 50 cents, the daily limit, at U.S. futures exchanges following the invasion.
“From the U.S. perspective … I don’t foresee a circumstance where American consumers on the food side are necessarily going to see the kind of impact and effect that the European consumers will see,” said Vilsack during a video news conference.
Vilsack and USDA chief economist Seth Meyer said it was too early to hypothesize about the longer-term effects of armed conflict in Ukraine. Both Russia and Ukraine are major wheat exporters, and Ukraine is a significant corn exporter. Russia is the world’s top exporter of fertilizer.
The United States is the world’s largest agricultural exporter. All the same, U.S. commodity prices rise and fall with the global tide. However, the farm share of the consumer food dollar is small — less than 15 cents, according to the USDA — so the effect of rising commodity prices is diluted as crops and livestock pass through the food processing, transporting, and retailing system.
“I think we in the United States are fortunate. We have tremendous production capacity,” said Vilsack, before pointing to Biden administration efforts to improve infrastructure and cool off food inflation.
As part of the Outlook Forum, the USDA forecast farm exports at a record $183.5 billion this fiscal year, an increase of $11 billion from the mark set last year. Mexico, with a surging appetite for corn, soybeans, pork, and dairy, would displace Canada as the No. 2 customer behind China.
“Clearly, China has been one of the drivers in improvements in the trade picture. Another way to read this is our traditional trading partners have come back into the market,” said Meyer. Vilsack echoed Meyer, and said that the United States should diversify its export flow. “We don’t want to be dependent on any one market,” he said.
U.S. ag exports soared following de-escalation of the Sino-U.S. trade war in 2020. Trade relations between the countries are increasingly seen as a rivalry rather than a partnership.
Mexico, China, Canada, and Japan will account for most of the growth in agricultural exports this year, the USDA projected. China would buy a record $36 billion worth of farm goods, an increase of $2.6 billion from last year, but Mexico would have the largest increase — $3.1 billion, for a total of $27 billion. Canada would buy $26 billion worth of farm goods, a $2 billion increase, and Japan would buy $14.8 billion, up by $1.2 billion.
Soybeans, the longtime star of ag exports, were forecast to hit $31.1 billion in sales, thanks to strong prices and reduced global supplies.
U.S. agricultural imports would also grow rapidly this year, up nearly 6 percent, to $172.5 billion, said the USDA. “Mexico is expected to remain the largest foreign supplier of agricultural goods to the United States, with Canada expected to remain the second-largest supplier, just ahead of the EU. Mexico’s sales are forecast to be $39.4 billion … due to increases in expected imports of produce and distilled spirits.” While agricultural trade would show an $11 billion surplus this year, USDA economists say the nation will become a net importer of food in the long run.
High input costs will dampen corn plantings this year, said USDA analysts. Assuming normal weather, farmers will plant 92 million acres of corn, a drop of 1.5 percent from 2021, but harvest a record 15.24 billion bushels, thanks to high yields, they said. Soybean plantings would rise by 1 percent, to 88 million acres, leading to a record harvest of 4.49 billion bushels. Season-average prices were forecast at $5 a bushel for corn, down 45 cents from 2021/22, and $12.75 a bushel for soybeans, down by 25 cents.
To read Meyer’s overview of the agricultural sector, click here. The accompanying slides are available here.