The Agriculture Department says it will likely be time to raise the bar on record U.S. agricultural exports again in fiscal year 2006.  That comes on the heels of a record in fiscal 2005, when U.S. ag exports totaled 62.4 billion, equaling the record set in fiscal 2004.  For fiscal year 2006, USDA predicts U.S. agricultural exports will top $64.5 billion.

 

It is not only exports that are projected to increase in 2006.  U.S. imports of agricultural products are also forecast to rise to $61.5 billion, an increase of nearly $4 billion compared to 2005.  Exports are only set to increase about $2 billion over the same period; therefore, the trade balance will contract to $3 billion.  This is due to a number of factors.

 

The strength of the dollar has a huge impact on our trade balance.  When the dollar weakens, it makes imports more expensive.  This is good news for our exports because it makes them more competitive on the world market, but since the trade balance is based on dollars, it can also cause the balance of trade to shrink.

 

The balance of trade is the difference between the value of exports and imports.  Therefore, the trade balance can shrink during a period of increasing exports when imports are increasing by a greater extent.  The U.S. agricultural trade balance has been shrinking since its 1996 all-time high of $27.3 billion.  Changing American consumption patterns are driving this increase in imports.  American consumers are seeking a wider variety of diet choices and more luxury products.

 

Americans now demand fresh products 12 months of the year, even outside the U.S. growing season.  Fresh asparagus in January is one example.  American consumers are also demanding greater quantities of products that we have a limited ability to grow, such as those native to tropical climates. For example, coffee and cocoa imports increased 31 percent and 2 percent, respectively, over the past year.

 

High-value, imported goods like wine and specialty beers are some of the luxury items Americans are demanding in greater quantities.  Wine imports increased 11 percent between fiscal years 2004 and 2005 and are projected to increase an additional 8 percent next year to satisfy increasing U.S. demand for both imported and domestic wines.  American consumers are also consuming more premium European and Mexican beers. 

 

While it may be daunting to realize that, in just a few years, there could be an agricultural trade deficit, there are several significant factors to keep in mind regarding the agricultural trade balance.

 

Trade is a way of meeting consumer needs and wants not satisfied domestically.  The United States remains a highly competitive exporter of grains, oilseeds, red meat, poultry and cotton.  American farmers and food manufacturers simply cannot produce everything that American consumers want, when they want it.

 

The U.S. agricultural trade balance does not indicate export competitiveness nor import dependence, but as long as the export bar continues to grow, that is certainly a good indicator.  It also shows that due to productivity increases and our focus on the needs of global consumers, American agriculture will continue to be a force to be reckoned with on the world market.

 

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