Market Preview: 10-15 Per Cent Drop in Exports Predicted

US - Weekly US Market Preview provided by Steve R. Meyer, Ph.D., Paragon Economics, Inc.
calendar icon 7 March 2009
clock icon 5 minute read

“What are exports going to do this year?“ I get that question a lot these days as producers, packers and processors, knowing the huge role that exports played in 2008, contemplate what is almost certainly the first year-on-year export decline in 18 years. Note: The first year of this growth period, 1999, was not a record year. That year exports were larger than those of 1998 but not those of 1997. Thus, we have just completed our 18th year of export growth but only our 17th-consecutive record year of increases in pork exports.

The two biggest, most widely watched, long-term models of US agriculture are USDA’s Baseline Projections and the FAPRI Baseline Forecasts from the Food and Agricultural Policy Research Institute at the University of Missouri and Iowa State University. The USDA Baseline, released in February, predicts that US pork exports this year will fall by 11.2 per cent from 2008 levels. FAPRI’s forecast, which is being released this week, pegs the year-on-year decline at 14.6 per cent this year. Interestingly, another USDA publication, the February edition of the World Agricultural Supply and Demand Estimates (WASDE) pegs 2009 pork exports at 15.2 per cent smaller than last year.

It appears that the modelers think exports will decline by 10 to 15 per cent. Since exports accounted for almost exactly 20 per cent of US production in 2008, this decline would leave 2 to 3 per cent more pork on the US market this year.

Comparing Pork Export Trend Data

All of this talk drove me to look at monthly pork export data since 1990, to see what trends would suggest, and how the surge in 2008 compared to those trends. What I found, I think, is pretty interesting. I hope you agree.

Figure 1 shows the actual data as well as four separate trend lines. The first trend encompasses all of the data, including 2008. It is a polynomial function that accounts for the accelerating growth rate of US exports. But even using an accelerating export rate, this function’s prediction for 2009 exports is 7.3 per cent lower than for those of 2008 – due to the huge surge last summer.

The three other trends all apply to subset time periods. The first is a pre-NAFTA (North American Free Trade Agreement) trend from 1990 through 1994. Average monthly exports during this period were 27.86 million pounds. Interestingly, though the slope of this line is less (flatter) than the other trends, the compound annual growth rate (22.6 per cent) is the highest of the sub-periods. The reason: It doesn’t take much unit growth to get a high growth rate when exports are relatively low. And due to those relatively low average export amounts, the coefficient of variation (CV) of exports (ie. the standard deviation divided by the average) is high at 22.8 per cent. What appears to be stability is actually a function of the size of the business at that time.

The second trend runs from 1995 through 2003, and is different from the earlier trend, primarily due to NAFTA. Average exports were 103.77 million pounds per month and, even though the unit growth was faster (ie. the slope is steeper), the compound growth rate slowed to 10.4 per cent per year. The period saw higher unit variability, but a lower CV (relative variability) of 13.9 per cent.

The third trend begins in 2004 and runs through 2007. Discovery of BSE (bovine spongiform encephalopathy) in the United States in December 2003, and tariff rates going to zero between NAFTA signatory countries and trade agreements with Central America, Russia and Australia, all contributed to the shift. Average exports jumped to 228.8 million pounds per month and, even at these higher unit levels, the growth rate increased to 12.1 per cent per year. While variation in unit terms certainly increased, relative variability actually fell again with the CV for this period being just 11.7 per cent.

So what does all of this mean for the future?

  • It appears that the long-term, polynomial function provides a very rosy forecast for 2009 due to the influence of the 2008 surge. But even if this trend does hold, 2009 exports would be 7.3 per cent lower than in 2008.
  • Throwing out the 2008 data and using the 2004-2007 trend suggests that 2009 exports will be roughly 3.9 billion pounds, 16.8 per cent lower than in 2008.
  • Based on the ’04-’07 trend, the data suggested that the 2008 trend in exports would have been 3.557 billion pounds, 13.3 per cent higher than in 2007. So the 2008 surge added 1.111 billion pounds to 2008 exports.

And what if China/Hong Kong had just bought their “normal“ amounts in 2008? Figure 2 shows where exports would have been had growth in exports to China/Hong Kong from September 2007 through November 2009 had been linear – just a straight line connecting the two months. The interesting result is that, even without the surge to China/Hong Kong last year, US pork exports would have been 31 per cent larger than in 2007.

If we can hold onto only that growth this year, the forecasts of an export decline may be far too pessimistic.

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