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Drought Could Affect U.S. Export Prospects

June 23, 1988

WASHINGTON (AP) _ The drought that threatens U.S. crop production also is sending shock waves through world markets and prospects for exports, according to Agriculture Department analysts.

But it could be one of those ″good news, bad news″ situations, says Tom Kay, administrator of the department’s Foreign Agricultural Service.

″There’s no question that the higher commodity prices we see today will likely raise the value of U.S. exports,″ Kay said. ″On the other hand, you have to recognize that higher prices might reduce the total quantity traded.″

In other words, one bushel of wheat selling for $3 is worth as much as three bushels selling for $1 each.

Kay and other USDA and farm officials contacted Wednesday agreed that it is too early for a realistic appraisal of the export situation. No one can be sure what this year’s harvests of corn, wheat and soybeans will be, and until that is known, the global supply and price situation is mostly guesswork.

The department’s first overall crop production estimates of the season, including total wheat, corn and soybeans, will be released on Aug. 11.

Kay said there ″could be a tendency for foreign buyers to want to increase nearby purchases to cover their future needs.″ And that could cause even further upward pressure on commodity prices.

Are there indications now that foreign buyers might be getting leery of higher prices for U.S. grain?

″No, there hasn’t been much activity of late in the international market,″ Kay said. ″Not much is being sold anywhere. There seems to be a general lull all over.″

So it’s wait-and-see what the drought will do, at least for many foreign buyers. Meanwhile, the USDA has not revised its latest export forecast, which showed the value of shipments in the fiscal year that began last Oct. 1 could rise to $33.5 billion from $27.9 billion last season.

The actual volume of products in the month-old forecast is expected to rise to 145.5 million metric tons from 129.2 million tons in 1986-87.

Except for soybeans, which are in relatively scant supply, the inventories of U.S. wheat and corn are more than ample to take care of foreseeable export needs. The big question, which officials say can’t be answered now, is how much 1988 crop production will be reduced and how far prices will increase.

Paul Drazek of the American Farm Bureau Federation’s Washington office agreed that export prospects are undecipherable at this point.

″Any time you have a drought of the apparent magnitude that this is, you have to start to be concerned about what it will do to our export volume,″ he said. ″My guess is that nobody quite knows what the effect will be on production, so it’s going to be difficult to attach some kind of an estimate to the effect on exports.″

″But with the price going up the way it is,″ Drazek continued, ″that alone will have a depressing effect on our ability to move products.″

Although there is a ″one-world market″ for some commodities, he said, ″our prices are going to be less competitive ... and that could have an effect on where people buy.″

Bob Denman of the National Farmers Union said, ″The next couple of weeks are going to really make the determination as to what starts to happen in that export market.″

Denman said that he ″wouldn’t be surprised″ to see some foreign buyers come back into the U.S. market for corn and other feed grains to protect themselves against further crop deterioration and even higher prices.

Regarding wheat, Denman said that a lot will depend on the quality of this year’s European harvest and also on Canada’s production.

″It’s not just in the United States,″ he said. ″That Canadian crop, as I understand it, is really being hurt pretty bad, too.″

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