USDA’s forecast of record agricultural exports in fiscal year (FY) 2007 (October 1, 2006 to September 30, 2007) and an increase in the agricultural trade surplus has caused some trade watchers to speculate that U.S. agriculture is more internationally competitive than it was just a year or two ago. What is actually happening is the value of bulk commodity exports has increased due to higher commodity prices. This has happened in the past and has not indicated improved competitiveness for U.S. agriculture.

USDA currently forecasts exports for FY 2007 at a record $78 billion, up $9.3 billion, 13.5 percent, from FY 2006. Imports are expected to be $70 billion, up $6.0 billion, 9.4 percent. That will result in an agricultural trade surplus of $8.0 billion, up $4.3, 91.5 percent, from last year’s surplus of $4.7 billion.

Of the $9.3 billion increase in the value of exports, grains and feeds account for $4.5 billion and oilseeds and products for $2.0 billion. Livestock, poultry and dairy add $1.2 billion to the increase in exports, and horticulture adds another $1.3 billion. Those four categories together accounted for $9.0 billion of the $9.3 billion increase.

On a volume basis USDA expects wheat exports to be down 0.2 million metric tons (MMT) to 25 MMT, rice down 0.5 MMT to 3.6 MMT, corn down 0.1 MMT to 56 MMT, and feeds and fodder down 0.1 MMT to 11.6 MMT. Soybeans and products are moving the other way with a 4.1 MMT increase to 38.5 MMT. Beef, pork and chicken meat exports are expected to be up 0.4 MMT to 4.6 MMT.

The increase in the per unit value of bulk commodity exports is certainly long over due. With the exception of the 2003 crop marketing year, export crop prices have been depressed for ten years. The higher prices for commodity crops are at least partly driven by increased biofuels production in the U.S. and around the world. While a reasonable assumption is that prices will remain strong over the next few years, that remains to be seen and will be greatly influenced by worldwide crop production each year.

Higher prices for bulk commodity from the 2003 crops led to a $6.2 billion increase in agricultural export values for FY 2004, but export values quickly leveled off again in FY 2005. Agricultural export values had a sharp increase in FY 1995 and FY 1996 as values increased from $43.9 billion in FY1994 to $59.8 billion in FY1996. By FY 1999 total agricultural export value had decline to $49.0 billion. The agricultural trade surplus declined from $27.3 billion in FY 1996 to $11.8 billion in FY 1999.

In FY 2006 grain and oilseed exports accounted for 42 percent of the total agricultural export value ($29.0 billion out of $68.7 billion), and in FY 2007 they are forecast to account for 70 percent ($6.5 billion out of $9.3 billion) of the increase in the value of agricultural exports. In contrast, horticultural crops accounted for 24 percent ($16.7 billion out of $68.7 billion) of the value of agricultural exports in FY2006 and are expected to be just 14 percent ($1.3 billion of $9.3 billion) of the increase in export value in FY 2007.

Bulk commodities prices have a much smaller impact on the value of agricultural imports. Grains, feeds, oilseeds and products account for only $8.5, 13.1 percent, of total agricultural imports and are expected to account for $1.1 billion, 18.3 percent, of the $6.0 billion increase in the value of imported products in FY 2007. This compares to cocoa, chocolate, coffee and rubber which had imports of $7.9 billion in FY 2006, 12.3 percent of total imports, and are expected to increase by $0.7 billion, 11.7 percent of the total increase in the value of agricultural imports. The broad category of horticulture product imports accounted for $29.2 billion of imports in FY 2006, 45.7 percent of total imports. That category will have a $3.1 billion increase in FY 2007, 51.7 percent of the increase in agricultural imports.

Over the past 15 years, agricultural imports have increased every year. The increases have varied from just a few hundred million dollars per year to $7.0 billion in FY 2004. Over the past four years agricultural import value increases averaged $5.75 billion per year compared to this year’s increase of $6.0 billion. Agricultural imports are driven by U.S. consumers’ desire for many products that are not produced in the U.S. or are not available year round. As long as U.S. consumers have the disposable income to acquire agricultural products from around the world, imports will continue to increase and will not be related to agricultural exports.

An agricultural trade surplus or deficit is not a measure of the competitiveness of U.S. agriculture. Imports are driven by consumers’ interest in a varied diet and their ability to pay for it. U.S. agricultural export values are influenced by temporary changes in the per unit value of bulk commodities. Domestic demand for U.S. agricultural products, including biofuels production, and the comparative advantage in production of commodities like corn, livestock, poultry, fruits and vegetables also determine the dollar value of agricultural exports.

Increased demand for commodities for the biofuels market will cause markets to adjust worldwide. If the volume of corn or soybean exports declines next year because the domestic livestock and biofuels markets outbid international buyers, that will not indicate that the U.S. is less internationally competitive. A better indicator to watch is the amount of carryover of U.S. supplies in relation to the growth in international trade in those markets. If producers in other countries are moving supplies into a growing world market while U.S. supplies are left in storage, then we should worry about our internationally competitive position.