Dr. Andrew Muhammad says he likes to start his economic presentations with “softball questions.” But his softball question stumped a large part of the audience at the Mid-South Agricultural Trade Conference at the Mid-South Farm and Gin Show March 1.

The question “In 2023, which country was the largest foreign market for U.S. agriculture?” drew several answers of China. Someone said Mexico. Both were wrong because, in 2023, Canada surpassed China as the leading buyer of U.S. agricultural products.

“Prior to 2023, China would have been the answer,” said Muhammad, a professor who holds the Blasingame Chair of Excellence in Agricultural Policy at the University of Tennessee. “In fact, China would have been the answer for the last decade. But this has been such a tough year in U.S. agricultural exports that China is no longer the leading buyer."

Partly as a result, U.S. agricultural exports are estimated to have fallen from a record $196 billion in Fiscal Year 2022 (Oct. 1, 2021-Sept. 30, 2022) to $178 billion in FY 2023. Ag exports are expected to fall another $7.5 billion to $170.5 billion in FY 2024.

Exports declined

What that means is that after years of being one of the few bright spots in the U.S. trade outlook, ag exports declined between 2022 and 2023 to the point that, for the first time in many years, the United States imported more agricultural products ($201 billion) than it exported.

Muhammad, who worked with USDA on international trade issues for 10 years before joining the University of Tennessee’s Department of Agricultural and Resource Economics, said that development is important because, on average, the United States exports about 20% of its agricultural products.

“Obviously, the answer depends on the commodity – when you think of a product like cotton, which is one of the major exports for the state of Tennessee, I’ve seen that as high as 80%,” he said. “We basically produce cotton for the world market.

“Other commodities like walnuts and almonds we export a lot. For soybeans and rice, it’s about half of what we grow. When we get into a category like beef, you say that’s only 10%. But that 10% makes U.S. beef one of our top five exports. That’s billions of dollars of U.S. beef going to the world.”

Other declines

If you look at U.S. agricultural and related exports, such as the forest products that are a major contributor to the Midsouth economy, the situation isn’t any better. Those fell from $212.9 billion in FY 2022 to $190.7 billion in 2023. Agricultural products alone dropped from $195.6 billion to $174.9 billion. Both were declines of more than 10%.

“Here are some of our top markets, and almost all are down with the exception of something that’s not a top commodity but is big for the state of Tennessee,” Muhammad said. “And that is distilled spirits. That’s the only ‘major ag product’ where exports have increased both nationally and at the state level (up 7.8 %).

“So what USDA is forecasting is something we have not seen in recent history – that’s an agricultural trade deficit, and they're forecasting that deficit to be even wider in 2024.”

The Agriculture Department’s February 2024 forecast of a decline in agricultural exports from $196 billion to $170 billion is not due to lower prices but also due to significantly lower volumes being sold, he said.

Exports of soybeans, which are a major crop in each of the Midsouth states, have declined 18.7 %. “But the biggest decline is in cotton export sales, which I’m certain have affected not just the state of Tennessee, but the entire Delta region and west Texas,” he said. “It’s down 33% due to sales volumes declining and not just the value. There are a lot of things going on. One is declining demand globally and in China; another is increasing competition, especially from Brazil.”

Such developments have taken a toll on the Midsouth and Southeast where exports for the region have declined by nearly $12 billion over the last two years. In Tennessee, forest products also took it on the chin.

“I’m always speaking out for the forest products sector,” he said, “And that’s a sector that has not fully recovered from the trade war, as well as the pandemic. We were a big supplier of hardwood logs for China’s furniture manufacturing sector.

“So we imposed these tariffs in 2018 and 2019 on Chinese furniture that indirectly decreased demand for our logs and lumber. Then, when they imposed tariffs directly on our logs and lumber, that further decreased demand, and you can see we have yet to recover.”

Soybeans impacted

The tariff or trade war has impacted other Tennessee and U.S. ag exports, particularly soybeans, which are Tennessee’s largest commodity export.

Muhammad displayed a slide showing soybean exports to all destinations by the world’s major producing countries, including Brazil and the United States. While U.S. soybean exports have ranged between 50 million and 60 million metric tons in recent years, Brazil’s have been climbing closer to 100 million metric tons.

“At some point Brazil and the United States satisfied global markets equally,” he said. “But, because of the trade war, China began to invest more in Brazilian production and infrastructure so that a lot of these export sales are through partnerships with Chinese companies and Brazilian companies.

“And one of the things you could see here is that Brazil now beats the United States in terms of soybean exports with that gap appearing to get even wider each year. And this story is consistent not just for one commodity, but here's a look at beef where you can see the rise of Brazil as a major exporter. A lot of these exports are going to China.”

He said Brazil also appears to be making major gains in cotton exports, although the United States currently remains the leading exporter. “I think a lot of people seem to miss this if you don’t do a deeper dive into what’s going on globally.”