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Multiple Factors Driving New and Growing Ag Trade Deficit

The U.S. trade deficit in ag products isn’t inherently a problem, but it reflects some troubling trends both in specialty crops and in corn and soybeans, the American Farm Bureau Federation says. The ag trade deficit is expected to be $32 billion in the fiscal year ended in September, up from a record $16.7 billion last fiscal year. This year will be only the fourth with an ag trade deficit, and as recently as 2011 there was a surplus of $44 billion.

Much of the shift has to do with horticultural products including fruits and vegetables. Increased labor costs and encroaching urbanization has hurt production of these products, requiring more imports. And as those imports have increased, they have pressured the prices for domestic producers – thus making it harder for them to hire the more expensive labor, the Farm Bureau says.

As for grain and oilseed production, the Farm Bureau notes with concern that exports have not picked back up in conjunction with declining commodity prices. “U.S. grain and oilseed exports are seeing headwinds from rising competition from Brazil,” the Farm Bureau said. “Efforts by China to become less dependent on agricultural imports from the U.S. are also having an impact. In fact, fiscal year 2024 is forecasted to be the first year that Mexico is the top destination for U.S. agricultural exports.”

The Farm Bureau also notes a growing trade deficit in animal fats and vegetable oils, which is being spurred by demand for feedstocks for renewable diesel, an issue we have highlighted recently. Some of these issues are at least partially out of U.S. control. The Farm Bureau suggests policy changes to ease labor challenges, which likely mean more open borders. The biggest unforced error is the lack of new trade deals. The U.S. has not made a new deal since 2012, and many of our trading partners have been busy making their own deals during this time. Given the stance of both of the main candidates running for president, this error seems unlikely to be corrected in the next few years.

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