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Farm product exports slow as industry works to recover China sales

A year after the West Coast port disruptions, U.S. agricultural producers are feeling the impact and trying to catch up lost sales.

"We do still feel like we're winning back some of that business," said Joe Schuele, a spokesman for the U.S. Meat Export Federation, a trade association focused on prompting international trade of U.S. beef, pork, lamb and veal. "It's an issue that lingered longer than most people realized."

Industry executives say it took time for a recovery of trust between shippers and buyers in key markets such as Asia. Delays of perishable commodities, whether beef, poultry or fresh produce, led some foreign customers to seek out other suppliers and resulted in more agricultural cargo coming from countries such as Argentina, Australia, Brazil, Chile and Canada. And with the dollar strong, it's been a challenge to woo them back.

A cargo ship docked at the Port of Long Beach, Calif.
Harriet Taylor | CNBC
A cargo ship docked at the Port of Long Beach, Calif.

"We figure about $120 million in export sales were lost," said Joel Nelsen, president of the California Citrus Mutual, which represents about 75 percent of the state's citrus industry. "Fruit was sent to China that was spoiled, and when it arrived it was rotten fruit and the Chinese just shut the door on us. This year the Asian market looks really good so far. Yeah, the dollar is an issue but there's this pent-up demand for our product."

There are still labor issues at the West Coast ports, including a port driver strike last month in Los Angeles and Long Beach, California, but the crippling congestion appears to be gone. Today, the strong dollar and slowing demand for U.S. agricultural exports to China are the bigger concerns. In a downward revision last week, the U.S. Department of Agriculture estimated U.S. agricultural exports at $125 billion for 2016, about 10 percent below the $139.7 billion in 2015. That would be lowest level in exports since 2010 and much of the decline in value this year compared to 2015 is due to lower prices for grain and feed exports.

However, there is some encouraging news. USDA Chief Economist Robert Johansson told attendees at the agency's Agricultural Outlook Forum last week that "export volumes of wheat, beef, pork and broilers are expected to hold their own and could be slightly higher compared to last year."

Overall, about 20 percent of U.S. agricultural products are sold overseas and about a third of the decline in the forecast this year is due to China.

According to Johansson, U.S. farm exports to China have increased by more than 125 percent over the past 10 years but he looks for exports this year to China "to be roughly equal to those to Mexico at $17.5 billion and behind exports to Canada, which are forecast to be $20.8 billion."

Livestock products are forecast to be down $2.2 billion from last year, reaching $16 billion. Due to weak demand and lower unit values, the government forecasts export sales of poultry and pork will each decline about 13 percent this year. U.S. beef exports are expected to fall about 8 percent to $5.4 billion.

Last month, Tyson Foods indicated it wasn't seeing much strength in export markets. The Springdale, Arkansas-based company is one of the world's largest processors and marketers of beef and poultry products.

"We haven't seen any significant improvement in export markets, however, domestic pork demand is good," Tyson Foods CEO Donnie Smith told analysts during the company's fiscal first-quarter earnings call.

Starting in 2015, U.S. poultry producers were affected by the closure of several major foreign markets as a result of the highly pathogenic avian influenza found in the U.S. The fallout from HPAI, or the avian influenza, continues to impact U.S. producers looking to import broilers into key markets.

Sanderson Farms CEO Joe Sanderson highlighted the tough export market environment last week during the poultry producer's fiscal first-quarter earnings conference call by noting export products were "significantly lower compared to last year's first quarter."

He said South Korea looked like it was going to open up but remains closed, and China's ban is still in effect although that doesn't affect leg quarters. While export markets remain challenging, the CEO did indicate that feed costs are down substantially, reflecting last year's near-record harvest of corn and soybeans.

Meantime, China's slowing demand and farm policies have created a wildcard of sorts — a surplus of grain and cotton that needs to be digested. China's self-sufficiency policies in grains have resulted in the country accounting for just more than half the total global corn stockpiles, according to USDA figures. China also accounts for about 60 percent of the world cotton stockpiles.

At the same time, China's import volume of many commodities such as beef and pork has accelerated as the economy slowed. That said, the European Union has been capturing most of the pork import growth into China.

On the beef side, the effects of the 2003 mad cow disease are still felt in farm trade with China. U.S. beef is allowed into Macau, Hong Kong and Taiwan but not mainland China. China imported just $65 million in beef back in 2003 but since then the market has soared to around $2.4 billion.

"We're now in a situation where if you don't have access to China, it's really having an impact on your overall results," said Schuele. "That's something we're hoping to see progress on in 2016."