June 14, 2022

Export Q & A: 2022 Global Economic Outlook



Q:  There seems to be too many challenges in the global economy for U.S. food exports to still prosper like they have been. What’s the latest correlation between all the economic issues and our country’s ability to continue to grow? 

A: The timing of the question is good since the Economic Research Service (ERS) and Foreign Agricultural Service (FAS) “Situation and Outlook Report Outlook for U.S. Agricultural Trade” was just released on May 26, 2022.  This may seem surprising, but they report that the global economic outlook for 2022 remains positive, but they have tempered earlier growth projections because of more recent trade disruptions, and of course the rising energy costs, rising inflation rates, and commenced tightening of monetary policy. In addition to that the April 2022 agricultural export data was just released in the USDA/FAS Global Agricultural Trade System or “GATS”, so we now can track developments over the first third of 2022.

The ERS report indicated that the “World real Gross Domestic Product” (GDP) is forecast to grow by 3.6% in 2022, which is a downward revision from the prior forecast of 4.4%. The invasion of Ukraine by Russia has created recent additional challenges to global economic growth.  This conflict and the response which resulted have further elevated energy prices, most immediately impacting the European market. The invasion of Ukraine significantly added increased uncertainty of agricultural supply and demand conditions in that region and globally.

In addition, continued complications from supply chain constraints remain a significant global growth headwind. Central banks are expected to respond to rising inflation rates by implementing contractionary monetary policy. The tightening of monetary policy typically presents challenges to economic growth in the short term.

Energy price increases remain a major source of inflation. The St. Louis Federal Reserve’s global price of energy index in April is up 24% since January. The Russian invasion of Ukraine has also added additional volatility to crude oil prices, as the Chicago Board Options Exchange crude oil volatility index (OVX), started in 2007, and reached an all-time high of 190 in March. Shortfalls in supply, occurring together with the return of post-pandemic consumer demand, have provided steady upward price pressure.

Natural gas prices were also directly impacted by the conflict in Ukraine. The Henry Hub is a distribution hub on the natural gas pipeline system in Erath, Louisiana. Due to its importance, it lends its name to the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange (NYMEX) and the OTC swaps traded on Intercontinental Exchange (ICE). The Henry Hub natural gas spot price average for April was up 34% from March, and up 147% from April 2021. U.S. exports of liquefied natural gas to Europe have become increasingly vital due to geopolitical tensions. Nitrogen fertilizer prices continue to rise because natural gas spot prices remain elevated. Natural gas is a vital production input in the manufacturing of nitrogen fertilizer.

The United States: The ERS report has indicated that projected growth for the United States’ real GDP in 2022 has been lowered to 3.7% from the previous estimate of 3.8%. The May 2022 Consumer Price Index (CPI) showed prices had increased by 8.3% over the past 12 months, significant inflation which the U.S. was surprised by. The Federal Reserve has reaffirmed its intention to continue a series of interest rate hikes given persistent inflation and continued declines in the unemployment rate. The Federal Reserve is also poised to start the process of unwinding its balance sheet of assets accumulated from Coronavirus (COVID-19) pandemic purchasing programs, further tightening monetary conditions to combat inflation.

One might wonder, is there any good news? Yes, as despite all that the ERS data reports that U.S. agricultural exports in fiscal year (FY) 2022 are forecast at another record high US$191 billion, up US$7.5 billion from the February forecast, led by increases in corn, cotton, and soybeans. Corn exports are forecast US$2.2 billion higher to US$19.1 billion due to both record volumes and higher unit values. Often it may be “one or the other” (value or weight). Overall grain and feed exports are estimated to be US$3.8 billion higher at US$46.7 billion, with gains across all commodities except rice. Cotton exports are forecast at a record US$9 billion, up US$1 billion from the previous forecast, driven by higher unit values.  Soybean exports are forecast to increase another US$1 billion to a record US$32.3 billion as higher volumes more than offset lower unit values. This is an example of “one or the other”.

In April 2022 the U.S. exported a staggering US$17.6 billion in agricultural products, for a year to date (YTD) total of US$66.7 billion. Of that amount 40% were consumer food exports which totaled US$26.7 billion, an increase of 10% YTD.  A rare event had occurred in which bulk exports increased 16% YTD have a higher share of the agricultural total 41% and a higher value of US$27.1 billion YTD 2022. That has not happened in years and may be only temporary, but it does illustrate the fact that bulk export commodity prices have gone up as well as the volume. U.S. exports of intermediate products added up to US$12.8 billion, an increase of 13% YTD and 19% of the agricultural total.  

The “HVP” high value processed food exports have grown 9% YTD to US$17.1 billion, up nearly US$1.6 billion from April 2021. That represents 26% of the U.S. agricultural total. Top U.S. processed food products with high growth in 2022 YTD include processed/prepared dairy products (+19%), alcoholic beverages (+12%), fats and oils (+38%), prepared/preserved meats (+13%) and dog and cat food (+21%). Oddly enough baby food exports have grown 15% YTD and total US$108 million.

USMCA Partners: Real GDP in North America is expected to grow by a projected 3.6% in 2022. The real GDP forecast for Canada in 2022 is revised downward from 4.1% to 3.9%. Pandemic related disruptions presented growth setbacks in the first quarter but have since dissipated. Euromonitor reports that higher oil prices are also likely to boost exports for Canada’s crucial energy sector. In the short term, economic momentum is expected to be supported by households, which will resume their consumer spending and return to more normal activity levels driven by a successful vaccination program. 

The real GDP forecast for Mexico is lowered to 2% from 2.8%. According to Euromonitor the economy in Mexico expanded in real terms in 2021, driven by increasing domestic consumption, public investment and external demand. Further implementation of the USMCA agreement and persisting trade tensions between the US and China are projected to accelerate trade with the U.S. However, the persisting pandemic-related risks, supply constraints and global inflationary pressures raise uncertainty and weigh on the country’s economic outlook. The lowered growth expectations are due primarily to tightening monetary conditions and supply chain disruptions.  

Another rare event which is proving to be temporary was that Mexico climbed past Canada for the #2 destination for agricultural products in 2021, for the first time since NAFTA began in 1994. Through April 2022 U.S. exports of agricultural products to North America show Canada in the #2 position with US$9.3 billion, growth of 21% and 14% of the agricultural total. Mexico has imported US$8.4 billion, YTD growth of 13% and also 13% of the agricultural total. This means that more than half of U.S. exports of agricultural products go to our USMCA partners.   

East Asia: China’s 2021 real GDP is expected to grow by 4.4% in 2022, lowered from 4.8% previously. Strict pandemic shutdown policies and COVID-19 outbreaks continue to pose significant obstacles for China’s economic growth. Japan’s real GDP growth for 2022 is revised down to 2.4% from 3.3% previously. Though Japan’s inflation rate remains well below global trend levels, the emergence of inflation presents a new challenge for policymakers. Over the past decade, Japan has faced a largely deflationary environment. South Korea’s real GDP growth in 2022 is lowered to 2.5% from 3%.

The ERS Forecast indicates that exports to Japan are up US$200 million to US$15 billion, largely due to higher beef and corn exports. The forecast for China is unchanged at US$36 billion, which will mean another record high level, as U.S. exports to China in 2021 totaled US$32.9 billion. YTD 2022 shows East Asia as the top region for U.S. exports totaling US$22.9 billion, an increase of 11% and a staggering 34% of the U.S. total. China of course is out in front with imports of US$11.9 billion, continuing its amazing growth of 20%, and about 50% of the regions total.

Southeast Asia: Euromonitor reports that the Association of Southeast Asian Nations or ASEAN GDP growth will be just north of 5% in 2022. Indonesia is forecast at growth of 4.7%, Malaysia at 5.6%, Philippines at 6.8%, Singapore should have growth of 3.7% Thailand 3.9 and Vietnam at 6.9%.  The export forecast for Southeast Asia is up a collective $300 million. Higher soybean meal, dairy, and wheat sales to the Philippines, as well as increased dairy and food prep exports to Malaysia, more than offset lower corn, soybean meal, and soybean demand in Vietnam.  

Through April 2022 agricultural exports from the U.S. to Southeast Asia totaled US$5.5 which is growth of 5% and 8% of the U.S. agricultural total. Philippines continues its tremendous growth at the #1 destination, importing US$1.4 billion, YTD growth of 23% and over 25% of the regions total. Vietnam is down 14% YTD mostly in the bulk categories named in the ERS report. Still at nearly US$1.3 billion that equals more than half of their entire total in 2017, so very impressive still. Singapore is the wild card in the region with YTD growth of 54% and US$610 million, mostly in the intermediate category.  

South America:  Collectively, South America’s real GDP is projected to grow by 2.3% in 2022, raised from the previous forecast of 1.7%.  Brazil is expected to grow 0.8% in 2022, raised from 0.7% previously. High inflation, elevated energy prices, and sharply tightening monetary policy continue to pose barriers to Brazilian growth. Argentina is expected to grow by 4% in 2022, raised from previous estimates of 2.5%. Argentina is poised to benefit from rising agricultural commodity export prices, but policy uncertainties, a depreciating currency, and serious inflation still pose risks to growth. The growth forecast for Colombia is 4.6%, in Peru it is 2.9%, and in Chile there should be growth of 2%.  

U.S. exports to South America YTD 2022 totaled US$3.3 billion, growth of 10% and good for a ranking of 5th among regions. Colombia continues its astounding growth, up 23% YTD with 46% of the regions total agricultural imports of US$1.5 billion. That is actually US$7 million more than the imported the entire year of 2013, the first year the US-CTPA was entered into force. The export forecast for Brazil is down US$100 million due to lower-than-expected shipments to date.

The Caribbean: The United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC) predicted in April that the region will see its pace of growth decelerate in 2022 to 2.1%, after reaching 6.2% on average last year. The forecast is for the Bahamas grow at 5.9%, The Dominican Republic at 5.3%, Trinidad and Tobago at 5.4% and the Cayman Islands at 4.6%. The export forecast for the Caribbean is $600 million higher on account of strong beef, poultry, and food prep exports.

The GDP growth shows the resilience of the region, and the U.S. exports of agricultural products show outstanding growth as well, up 22% YTD to US$1.8 billion. The Dominican Republic or “DR” leads the way in value with imports of US$738.8 million or close to 41% of the regional total, with growth of 6% YTD. Nearly all the other islands show double digit growth including Jamaica with 51%, Trinidad and Tobago with growth of 30%, Bahamas at 39%, Cayman Islands at 32% and Barbados with 22%. And remember last year was a record high for the region so this year looks like another record high. 

Central America: Focus Economics reports that the Central American regional economy will expand at a more moderate pace this year AT 3.8% due to a tougher base effect and the fallout of the war in Ukraine. Higher commodity prices will drive up inflation, weighing on consumer spending and remittance inflows. Tighter financial conditions will further dampen activity. However, lower unemployment levels should provide some support to spending. GDP growth in Costa Rica should be 2.3%, El Salvador is forecast to grow 3%, Guatemala should reach growth of 3.5%, Honduras is forecast at 3.8%, Nicaragua may also reach 3.8% and Panama as always leads the region with growth of 7.1%.  Forecast exports to Central America are up $900 million, driven by robust exports of corn and wheat.

The scenario is very similar to the Caribbean; with high GDP growth you also see an increase of 28% YTD to the region at US$2.5 billion through April of 2022. The top markets in Central America are all in Free Trade Agreements with the U.S. and it shows as always. Guatemala is the top market here with YTD imports of US$709.3 million, growth of 30% and 28% of the regional total. Honduras is a “sleeper” market that does not get much press but none the less performs very well. It is the 2nd largest market in the region with imports of US$437.2 million, up 17%. Costa Rica follows up 20% YTD at US$402.2 million, and then Panama up 14% YTD at US$330.4 million.  

 

So, although we face serious headwinds around the world and at home, U.S. exports of food products continue to grow at a record pace, creating value added manufacturing and other jobs and building long lasting trade relationships around the globe.