The larger the share of production going to exports, the more vulnerable crop, meat and dairy producers are to export disruptions. Two examples should resonate with farmers, decades after they happened.
One is President Jimmy Carter's 1980 partial embargo on grain export sales to the Soviets over their invasion of Afghanistan. The other is the 1973 export embargo on soybeans to Japan to fight inflation.
U.S. pork producers and dairy farmers face export and revenue pressure from Russia's import bans on Western products due to the West's sanctions over its actions in Ukraine.
"Russia's ban on imports from key dairy suppliers pressured world dairy product prices 30% to 50% lower to attract other buyers," says Rabobank dairy analyst Tim Hunt. "Price cutting has succeeded in moving huge volumes of product to lukewarm buyers, limiting the stocks buildup. Still, second-quarter milk prices will likely fall below full costs of production in many regions, despite feed prices tumbling from drought-induced highs."
November U.S. pork export volume dipped almost 20% below a year earlier. Sticky-high November pork prices and earlier overbuying by importers on expectations porcine epidemic diarrhea virus would create shortages fueled the export slump.
"The Russian ban on North American pork and more importantly European Union pork, has created a significant imbalance in the global pork trade," says Steve Meyer, Paragon Economics, Adel, Iowa. U.S., EU and Canadian pork account for about two-thirds of world pork exports. Russia used to be the second-largest pork importer after Japan, accounting for about 15% of world imports.
The ban has slashed Russian pork consumption. Some pork is likely filtering through. But Russian authorities have been much more forceful in preventing "gray trade" through neighboring Ukraine and Belarus.
European ag trade suffers, too
European hog and pork prices are off about 16% from a year ago due to lack of Russian business. Prices are the lowest in five years. Euro zone markets are mired in a deflationary spiral. Economic growth has stalled, further eroding consumer demand. Producers there have ramped up pork production, largely due to the strong margins achieved in 2012 and 2013.
Lower EU hog and pork prices come at a time when the value of the Euro is weakening against our dollar. This makes European pork more competitive in the global market.
"In January 2013, the EU hog carcass price was about €170.0 per 100 kg or US$102.80 per cwt," notes Meyer. "Today, the EU hog carcass price is about €130.6 per 100 kg, down 23% from just two years ago. That converts to $69.50 U.S. dollars, down some 32% from two years ago. The Iowa-southern Minnesota hog price is about $71 per cwt."
EU and Russian negotiators appear close to resuming pork trade. The European Livestock and Meat Trade Union views negotiations between EU Commission veterinary services and Russian counterparts as "very positive and should soon allow a resumption of exports of some EU pork products to Russia." This has always been a political issue, and renewed fighting in Ukraine could derail such talks.
"Meanwhile EU pork producers struggle with weak prices and negative margins," notes Meyer. "U.S. producers worry if they can still count on exports taking 1 out of 4 pounds of U.S. pork produced."