COVID-19 Impacts Grain & Row Crop Equipment Exports
U.S. exports of equipment for cultivating grain, oil seeds, and other commodity row crops have fallen sharply since the beginning of 2020 and the global onset of COVID-19. In the first quarter of the year, U.S. exports declined more than 40 percent from the same period in 2019. This decline closely follows falling global prices for the crops this equipment is used to produce. Declining commodity prices, disrupted supply chains and logistics, and financial uncertainty in agribusiness markets all accompany the drop in exports. In response, the Export-Import Bank of the United States and the Small Business Administration are extending financial relief to U.S. exporters impacted by the pandemic.
COVID-19 and Agricultural Equipment Exports
Grain and row crop equipment exports, worth $3.2 billion annually, represent roughly one-third of total U.S. farm machinery shipments overseas. Market trends for this sector were generally flat at the beginning of the year, with growth in 2020 and 2021 expected to be quite slow at best. Since then, the outbreak of COVID-19 disease has disrupted global agribusiness supply chains, with negative consequences in leading agricultural equipment export markets.
| First Quarter U.S. Exports: |
| 2019 v. 2020 |
| (U.S. $ Millions) |
| 2019 |
$1,063.03 |
| 2020 |
$630.42 |
U.S. exports declined rapidly as COVID-19 spread around the world. After five years of slow, if somewhat irregular growth from 2015 to 2019, grain and row crop equipment exports dropped 40.7 percent in the first quarter of 2020. Although exports of some implements showed modest improvement, shipments of large horse-power tractors and combine harvesters—together, roughly two-thirds of exports—declined 35 percent and 67 percent, respectively, compared with the first quarter of 2019. Exports of center-pivot irrigation equipment fell nearly 25 percent. [1]
Exports to U.S. manufacturers’ five largest markets fell sharply, as well. Shipments to Canada and Australia, the United States’ first- and third-largest markets, dropped nearly 40 percent. Exports to third-ranked Brazil fell by nearly 90 percent. China and Ukraine declined by more than 60 percent. [2]
This decline closely follows falling global prices for the commodities this equipment is used to produce. The United Nations Food and Agriculture (UNFAO) prices indices for cereals, sugar, meat, and vegetable oil all declined through the first quarter and into April. While the cereals index fell a relatively modest 5.3 points from January to April, sugar fell 55.8 points. The price indices for key grain and oilseed end-use sectors, vegetable oils and meat, dropped 44.5 and 15 points respectively. [3] Cotton prices are also down nearly 20 percent in 2020. [4]
[1] TPIS Database: USHS EXPORTS, Revised Statistics for 1989-2019, Prepared by The U.S. Department of Commerce, Bureau of the Census, Foreign Trade Division, and The International Trade Administration, Trade Policy & Analysis; 2020, Washington.
[2] Ibid.
[3] “In April the FAO Food Price Index fell for the third consecutive month”; UN Food & Agriculture Organization; May 7, 2020, Rome.
[4] “Market Strategy - Weekly Commodities Strategy: Markets Rallying But EM FX And Political Risk In Focus”; BMI Research; May 7, 2020.
Global Market Conditions
Significant improvement in U.S. exports of equipment for cultivating grain or other row crops is unlikely in 2020. High global commodity stocks, increasing productivity, and falling demand will depress producer prices—and with them, farm income—in key machinery markets. UNFAO estimates 2019 world cereal production at around 2,720 metric tons, but forecasts that world cereal utilization for 2019/20 will decline slightly, “as a result of COVID-19 impacts on economic growth, energy markets, and, to a lesser extent, feed demand,” according to the May 2020 UNFAO Cereal Supply and Demand Brief. [5] Major suppliers’ export prices for key commodities declined noticeably from January through mid-April, with export prices for Brazilian soybean, for example, falling more than $39 per ton. [6]
| Global Ag Commodity Prices * |
| Jan.-April 2020 |
| |
January |
April |
| Cerals |
169.3 |
164.0 |
| Meat |
183.8 |
168.8 |
| Vegetable Oil |
176.3 |
131.6 |
| Sugar |
200.7 |
144.9 |
*100 = 2002-2004. UN Food & Agriculture Organization; FAO Food Price Index, May 2020.
The extent to which the cost of fuel and other inputs, as well as interest rates, decline as a result of deteriorating economic conditions may buffer the impact of tepid demand for commodities. On the other hand, the temporary shutdown of ports, railway terminals, processing plants and other facilities due to health concerns have caused bottlenecks in the agribusiness value chain. [7] Prices are likely to remain relatively strong for crops for which direct human consumption is the main source of demand, especially wheat and rice. Corn and soybeans, however, are more vulnerable to disruption in meat processing, vegetable oil manufacturing, and ethanol refining and demand will be weaker. [8]
[5] “Global cereal supplies are adequate amid COVID-19 shocks to economic growth and energy markets”; UN Food and Agriculture Organization; May 5, 2020, Rome.
[6] “Export Prices (f.o.b.), World, Corn feed, Black sea; HRW wheat, US Gulf; Soybeans, Paranagua”; Gro Intelligence, May 13, 2020.
[7] Naveen Thukral, Maha El Dahan, “Food Security Concerns Stoked as Exporters Curb Sales, Importers Buy More”, Reuters, in U.S. News & World Report, March 26, 2020. https://www.usnews.com/news/world/articles/2020-03-26/world-food-security-at-risk-as-exporters-curb-sales-importers-buy-more
[8] “Market Strategy - Weekly Commodities Strategy: Markets Rallying but EM FX And Political Risk In Focus”; BMI Research; op.cit.
U.S. Government Support for Exporters During COVID-19
The Export-Import Bank of the United States (EXIM) has extended relief provisions for many of its services for exporters and financial institutions that may have been affected by COVID-19. [9] Most recently, EXIM raised to 95 percent the guarantee coverage option for its Supply Chain Finance (SCF) and Working Capital Guarantee (WCGP) programs, up from the standard 90 percent guarantee. This increase is effective through April 30, 2021. By increasing the guarantee coverage option, the programs are more widely available to U.S. suppliers and exporters and incentivize financial institutions to make more supply chain financing available to U.S. exporters by reducing their credit risk.
EXIM has also authorized the granting of waivers, deadline extensions, streamlined processing, and flexibility to enable participating businesses and financial institutions to return to their business concerns and EXIM-related obligations at an appropriate time without penalty. These provisions, subject to certain requirements, apply to the bank’s:
- Working Capital Guarantee Program
- Multi-Buyer and Single-Buyer Short-Term Insurance Program
- Medium-Term Single-Buyer Insurance Policies Issued to Exporters or Financial Institutions
More information on the EXIM COVID-19 response can be found at: https://www.exim.gov/coronavirus-response
The Small Business Administration (SBA) provides export loans to help small businesses achieve sales through exports and can help these businesses respond to opportunities and challenges associated with trade, such as COVID-19. [10] The loans are available to U.S. small businesses that export directly overseas, or those that export indirectly by selling to a customer that then exports their products. Programs for exporters include:
- Export Express
- Export Working Capital
- International Trade Loan Program
More information on SBA programs can be found at: https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
[9] “EXIM Increases U.S. Exporter Access to Capital and Supply Chain Financing During COVID-19 by Raising Lender Guarantee Coverage Option to 95 Percent”; “EXIM Extends Assistance to U.S. Customers and Lenders Amid COVID-19 Pandemic”Export-Import Bank of the United States, Washington, DC. https://www.exim.gov/coronavirus-response
[10] “Coronavirus Relief Options”; Small Business Administration; Washington, DC. https://www.sba.gov/funding-programs/loans/coronavirus-relief-options
