Iowa Public Television


The Incredible Shrinking Ag Trade Surplus

posted on November 12, 2004

Hello, I'm Mark Pearson.

With the economy growing at a respectable pace, the Federal Reserve this week boosted short-term interest rates by a quarter-point. The increase brings the federal funds rate -- the rate banks charge each other on overnight loans -- to 2 percent. That's closer to the normal range than the 45-year lows seen in recent years. Analysts believe commercial banks will follow suit by raising rates for consumer and business loans a quarter-point, to an average of about 5 percent.

In other economic news this week, the government reports consumers slowed their spending in October, as retail sales edged up just two-tenths of a percent. And the bloated U.S. trade deficit shrunk in September to $51.6 billion, as exports of American-made goods posted their best month on record.

Odd as it may seem, U.S. agriculture was NOT one of the benefactors of the improved trade. For 20 years, farm trade has been one of the bright spots in the export picture. But recent trends are showing troubling signs for the export-dependent U.S. farm sector.

The Incredible Shrinking Ag Trade Surplus In the black for almost 45 years, the US agricultural surplus is nearing the zero mark. In a copyright story by the Wall Street Journal, the USDA is stating that, for the first time since 1986, the US imported more agricultural goods than it exported.

If the condition persists, Bush administration officials are speculating the trade surplus could become a deficit for the first time since 1959. USDA numbers are projecting the fiscal year 2004 surplus at $9.5 billion but estimates are placing the fiscal 2005 surplus at just $2.5 billion.

The cause of the ever-closing gap is being attributed to both foreign and domestic sources. US consumers have increased the amount of imported foods they purchase at the supermarket. The products are in several categories including shell fish and wine. And US companies have begun purchasing imported goods to fill the pipeline

Meanwhile, a few of the countries that were large net importers have become net exporters; these would include Russia, India, Canada and Brazil.

In the past, the agricultural surplus has been able to help reduce the overall trade deficit but now that power is diminishing. With the decline it may become harder for farm-state lawmakers to get emergency farm aid. And at least one economist is concerned that foreign governments may not be willing to continue to loan the US money to continue with an agricultural deficit. If this occurs, it could mean the value of the dollar will continue to decline.

Tags: agriculture crops news trade