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Export forage update

John Szczepanski for Progressive Forage Published on 30 October 2020

It may be too early to conduct an export year in review but, given the roller coaster ride of 2020, exporters should be forgiven for wanting to look forward to a new year and a clean slate. So far, this has been a year of challenges and risks, requiring new skills and methods.

Calendar year 2020 has in fact been strong so far, at least in terms of gross export sales. According to the latest available data from the USDA (per early September), U.S. forage exports through July were tracking 15% higher than over the same period in 2019. If current trends continue, 2020 could see U.S. forage exports reach a record $1.4 billion.

Beyond the numbers, this year will be remembered for the Covid-19 pandemic, which has impacted international markets, overseas freight and internal operations.

Across Asia, closures of schools and restaurants have dampened demand for dairy and meat products; milk prices in China and elsewhere are stagnant or falling. Forage importers are showing their lack of confidence by taking shorter positions, buying in smaller lots to avoid getting too far ahead of the needs of their end users. This puts exporters into a bind, as they must continue to buy and hold inventory per historical levels, not necessarily on what customers are indicating with their smaller orders. Said one exporter, “You’ve got to have confidence to know what your customer usually needs, not what they’re telling you.” For exporters sitting on $5, $10 or $20 million of inventory, the risks are considerable.

U.S. forage exports through July 2020

This year, transportation has been impacted on a major scale: Exporters are frustrated over vessel delays and cancellations, which have created logistical nightmares in scheduling staff and trucking. Even more significantly, carriers and terminals are pushing demurrage charges onto shippers, which sometimes can exceed the original freight cost.

During the pandemic exporters have been juggling staff schedules, protecting vulnerable employees by letting them work at home and responding to often ambiguous social distancing regulations. “Zoom” wasn’t in many people’s vocabulary last year, but the video platform is now a vital tool used to maintain contact with overseas customers. With travel curtailed this year, foreign buyers are now “zooming” and asking for more samples and photos. Exporters have had to quickly adapt, becoming social media centers in order to provide comprehensive, real-time information to customers.

Despite relatively strong exports over the first seven months of 2020, this year’s final figures may yet be impacted by the pandemic. Historically, forage exports tend to exceed the previous year. This has been the case over the past 15 years with just two exceptions, 2014 and 2018 – years impacted by the West Coast port slowdown and the U.S.-China trade dispute. Whether this year will improve upon 2019 and set a new record may depend upon the next few months.

The breakdown of U.S. forage exports by market

A review of the past 15 years of export data shows that monthly figures tend to rise and fall – extended streaks of growth or decline are unusual. However, the one period of the year when sales tend to decline in successive months is April through July, a period when overseas inventories recalibrate to accept new harvests. Sales almost always perk up in August; in fact, the only years August sales were less than the previous month were in 2014 and 2018 – the two years that total annual sales were less than the previous year.

Will exports rebound in August 2020? Some exporters aren’t too sure, especially those shipping to China, where some report that alfalfa is stacking up at port warehouses.

China represents 28% of all exports and is the largest buyer of U.S. alfalfa with a 41% share. As part of the Phase I trade agreement signed earlier this year, China granted market access to U.S. timothy as well as pellets and cubes made from alfalfa. The market was officially opened mid-May and, as of early September, the first sales have just been made. On Sept. 14, the government of China decided to exempt punitive tariffs on alfalfa for another year. In the weeks leading up to the announcement, Chinese customers expressed nervousness over the potential return of 25% tariffs that hampered trade in late 2018 and early 2019, and some customers were slowing or delaying orders. In a statement from China’s Ministry of Finance, the tariff exclusion was extended to Sept. 16, 2021.

Japan remains the largest market for U.S. forage, purchasing 36% of all U.S. forage and 60% of “other hay,” which includes timothy, sudan, bermuda and straw.

Other markets remain steady, with Korea on track to reach about $175 million in purchases of U.S. forage in 2020 – 13% of all exports – and could reach $200 million in purchases of U.S. forage by the end of 2020. While the Mideast remains a large forage buyer, customers have been sourcing closer to home. The kingdom of Saudi Arabia represents 8% of U.S. exports, with the United Arab Emirates at 5%; other customers in the region include Qatar, Oman, Jordan and Kuwait.

U.S. forage exports through July 2020 are 15% higher than the same period last year

Looking ahead, forage exporters seek to strengthen existing markets while developing new sales opportunities. Key to making this happen is a stronger transportation system. Shippers are concerned about consolidation in the industry that limits freight options and increases costs. Ports along the West Coast lag behind others in terms of efficiency, making it harder to position U.S. agriculture as a reliable partner to international customers. With this in mind, the U.S. Forage Export Council (USFEC) has been working closely with the Agricultural Transportation Coalition (AgTC) to lobby for a stronger transportation system and to change laws that potentially harm agricultural trade.

Despite some recent success in China, the USFEC continues “friendly pressure” on agencies and policymakers to urge China to accept Roundup Ready alfalfa, a struggle that’s now entering its 10th year. And while China has recently opened its doors to new products, USFEC is pushing for market access of all forages, including straw. In 2021, USFEC will continue market development activities in India, where it is hoped that the requirement for heat-treated alfalfa will be dropped, allowing high-quality U.S. forage into a market with the largest stock of cows in the world.  end mark

USFEC director since 2007, John Szczepanski has represented the U.S. forage industry in government and industry meetings in the Middle East and Asia, and has coordinated inspection and trade missions to develop market access. He has 30 years international business experience in the private and public sectors, including marketing and sales positions based in the U.K., Ireland and Japan. In the public sector, he has worked for both federal and state departments of agriculture. Szczepanski teaches seminars in international marketing and business storytelling, and consults with food-related businesses.

John Szczepanski is the Director at the U.S. Forage Export Council. Email John Szczepanski

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