Trade talks often circle around what deficit or surplus exists in the country or any given market. But the details are often more interesting than the top-level talking points.
Tuesday, Jan. 7, saw the release of the Census’ Monthly U.S. International Trade report for November 2019. The report met with cheerful attention in the mainstream and economic news outlets because the report suggests 2019 is on track to see the first annual deficit decline since 2017.
A trade deficit is when imports exceed exports. A trade surplus is the opposite, where exports exceed imports. Both surpluses and deficits can be measured in volume/number or value. Both declines in trade deficits and trade surpluses are usually welcomed as good for the economy.
“Year-to-date, the goods and services deficit decreased $3.9 billion, or 0.7 percent, from the same period in 2018,” the report noted. “Exports decreased less than $0.1 billion or less than 0.1 percent. Imports decreased $3.9 billion or 0.1 percent.”
However, the overall suggestion of a declining trade deficit is skewed by a few very strong performers.
“The biggest contributor to the drop in the deficit from January through November was the continuing boom in shale oil,” noted a Jan. 8 Bloomberg article. “The non-petroleum deficit grew almost $20 billion to $766.2 billion in the first 11 months of 2019, putting it on track to beat 2018’s full-year record deficit of $824.8 billion.”
The “Foods, Feeds, and Beverages” top-level trade category includes most agricultural trade goods. According to the Census report, that category was running at a $14.38 billion deficit year to date through November 2019. For meat and poultry trade specifically, year-to-date exports, valued at $18.42 billion, were larger than year-to-date meat product (not including seafood) imports valued at $10.9 billion.
USDA offers trade data specifically for beef and cattle. Unfortunately, the USDA’s data is in terms of head of cattle or volume of beef rather than in dollar values, making it more difficult to directly compare the Census and USDA data.
Year to date through November 2019, the U.S. imported far more cattle (1.83 million head) than it exported (619,213 head), resulting in a cattle trade deficit of about 1.21 million head. This was a larger cattle trade deficit than seen during the same time in 2018 at 1.18 million head.
Through the same time period, the U.S. imported slightly more pounds of beef and veal (2.83 billion) than it exported (2.77 billion), resulting in a beef and veal trade deficit of about 60 million pounds. During the same time in 2018, there was a beef and veal trade surplus of 110,000 million pounds.
The most recent World Agricultural Supply and Demand Estimates (WASDE) report available by print time (Dec. 10) projects that this situation may reverse once the December 2019 data is available. The USDA estimates that the total 2019 beef trade situation will show a trade volume surplus of about 28 million pounds.
Similarly, WASDE projects 2020 beef trade will see a beef trade volume surplus. Imports are expected to be 2.88 billion pounds, while exports are expected to be 3.31 billion pounds, suggesting a beef trade surplus of about 430 million pounds.
But… does it matter?
During the November 2019 Range Beef Cow Symposium, Jim Robb, senior agricultural economist with the Livestock Marketing Information Center, went after the usual narrative surrounding beef trade in this country in an unusual way.
“I don’t give a hoot if we export more than we import; I care about what it’s worth,” he told the audience. “Because of the economics of trade, what we export is worth way more than what we import.”
He drove this concept home with a bit of audience participation, asking how many people ate beef. Every hand went up.
“I’m an economist and I say none of you eat beef,” he answered to more than a few surprised faces.
“‘Beef’ is a contrived number. It doesn’t mean anything,” he explained, pointing out that everyone in the audience eats ‘hamburger,’ ‘steak,’ and ‘prime rib.’ Not ‘beef.’
“Why do we have international trade?” he asked rhetorically.
“Mostly because we don’t eat beef. In this country we eat certain products more than other countries and they’ll pay more for certain products. So, we import what we will pay for, which tends to be manufacturing beef for hamburgers and toppings, and we export other stuff like thin meats, etc.”
He pointed out that we don’t much eat tongue or thin meats here. But in places like Mexico or Japan, those cuts are prized and paid for.
“You sell the highest priced cuts to the highest priced market and you buy what you need to fill in the other side from the international markets—that’s economic efficiency,” he explained, driving home the point that the value differences of what the U.S. imports versus what the U.S. exports is far more important than the volume.
“We import more cattle than we export in this country from Canada and Mexico. We export more value in hides, we export more value in meat, we export more value of internal organs. We always export more dollar value than we import. That means that trade adds to the bottom line of cattle prices in a positive sense. The net of that comes back as a positive, not a negative. It’s a positive of about $2-3 billion a year.” — Kerry Halladay,WLJ editor
“Because of the economics of trade, what we export is worth way more than what we import.”
“You sell the highest priced cuts to the highest priced market and you buy what you need to fill in the other side from the international markets—that’s economic efficiency.”
“That means that trade adds to the bottom line of cattle prices in a positive sense. The net of that comes back as a positive, not a negative.”
