The Wall Street Journal had an amusing article a few days ago in which analysts bumped up GDP forecasts for numerous reasons including inventories, exports in general, and soybeans in particular. Let’s investigate the claims.
Please consider Soybeans Are Fueling U.S. Economic Growth (But Not for Long).
U.S. agricultural exports have surged the past two months, helping cut the trade deficit and boosting the outlook for short-term economic growth.
One big factor? Soybeans. Bumper harvests at home, crop shortfalls in South America and solid demand—especially from China—have propelled international feed sales.
“Soybean exports will add about 1% to [third-quarter] GDP growth,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients.
Mr. Shepherdson is forecasting 4% annualized growth in third-quarter gross domestic product, a broad measure of economic output.
That’s a big improvement from 1.4% GDP growth in the second quarter and 0.8% in the first. But it does little to alter the longer-term outlook. First, exports are likely to return to trend while depleted crop inventories would be a drag on GDP. Second, the economy has averaged a modest 2.1% growth rate over the course of the expansion, a trajectory that seems unlikely to change despite some noise from quarter to quarter.
“The soybean boost is indeed a one-time thing. It has no implications for trend growth and likely will reverse over the next couple quarters,” Mr. Shepherdson said.
Shifting Outlook
Following the commerce department international trade report on September 29, other analysts bumped up their forecasts as well.
- J.P. Morgan Chase revised its outlook to 3% annualized growth in the third quarter, up from its earlier estimate of 2%.
- Amherst Pierpont Securities boosted its forecast to 3.7% from 3.5%.
- Macroeconomic Advisers raised its tracking forecast by three-tenths to 3.1%.
- Barclays inched up to 2.6% from 2.4%.
Is JPMorgan reading Shepherdson? The other way around?
Regardless, Shepherdson’s forecast got me curious about a number of things, namely soybeans and the trade deficit.
Trade Deficit Shrinks More Than Exected
In Trade Deficit Shrinks a Bit More Than Expected: Impact on GDP Estimates? I took a stab at the impact.
Impact on GDP?
The impact on tomorrow’s Atlanta Fed GDPNow estimate and the FRBNY Nowcast estimate for 3rd quarter GDP is guesswork two ways.
First, I do not know what their model predicted. Second I do not know how their model will react even if I did know what it predicted.
Thus, this seemingly good result might not turn out that way if the models predicted even better results.
Nonetheless, I am willing to take a stab: The impact from this report will be small, but slightly positive on third quarter GDP estimates (+0.05 to +0.10) percentage points.
GDPNow Impact
I was on the low side. A check of the GDPNow Model Data (shows the net effect of all exports went from -0.13 to +0.13 between September 28 and September 30.
The deficit shrinkage will add something like 0.26 percentage points to third quarter GDP. Soybeans are only a tiny portion of exports.
Balance of Trade
Balance of trade chart from Census Bureau.
That chart is through August. Is another stellar month coming up in September? Based on soybeans?
Price of Soybeans
At $9.63 per bushel, the price of soybeans is up from a year ago, but down substantially from second quarter.
It’s not clear why soybeans will add anything to third quarter GDP. Are exports soaring?
USDA Soybean Statistics
Let’s investigate USDA Soybean Statistics as of September 2016.
*Crop Year: September 1 through August 31
If we assume soybean exports will rise by 100 million bushels from the previous year, and apply all of it to third quarter GDP, at a price of $9.63, soybean exports would add $963 million to GDP.
The entire production increase from last year is only $2.8 billion.
From first to second quarter, Real GDP went from $16,525 billion to $16,583 billion, an increase of $58 billion (seasonally adjusted annualized).
Factor GDP by quarters if you like, but also factor soybeans exports by quarters as well.
Soybean Exports
Chart from Allendale Weekly Export Sales report on 8-11-2016.
In the Allendale Weekly Export Sales report on 9-22-2016 (for the period September 8-15) we find this blurb.
US: Soybean export sales totaled 875,724 metric tonnes (all 2016/17, no 2017/18). This was under the 900,000 – 1,200,000 trade expectation. USDA’s whole-year goal comes to 1.985 billion bushels, a new record. That would be 2% over last year and 22% over the five year average.
Amusingly, corn seems better.
US: Weekly export sales for the period from September 8 – 15 were released this morning. Corn export sales totaled 921,903 metric tonnes (all 2016/17, no 2017/18). This was just over the 700,000 – 900,000 trade estimate. USDA’s goal for the year, at 2.175 billion bushels, would be a record. It would be 14% over last year and 36% over the five year average. With only two full weeks figured of the new crop year done, our total sales come to 707 million bushels, 84% over last year and 43% over the five year average. Due to good pre-September sales, we are ahead of the pace needed.
In September, only the incremental export increase (if any) from August will add to 3rd quarter GDP. We had a huge jump from July to August, is another huge jump coming? A reversal actually seems more likely.
Regardless, the notion that soybeans or corn exports (corn at $3.48) will add 1% to 3rd quarter GDP is ridiculous.
Mike “Mish” Shedlock
Great take …thanks Mish.
Dear Mish,
Trump will put tariffs on imports and solve the American conundrum.
It is all planed by the GOP team.
Btw, I have another rhetoric question to you concerning the Target.
You do not need to answer and publish. Just to make you sure that you know the answer to yourself.
When Volkswagen sells one car manufactured in Spain in the USA or the UK markets, where you compute the money flow in the Target2 scheme?
Do you know? I doubt.
Kind Regards
Try to be relevant, jerkoff.
Dear Teapartydoc,
Congratulations.
I have another exibit from the British Office of National Statistics and would you be so kind explain me how do you compute those figures in the target2?
https://postimg.org/image/syre7cbwb/
Is it possible to feed the flow of capitals inside the Eurozone with these figures?
Thanks in advance.
And if you are an Economist (that respectable and honorable profession on these days) could you explain how these socialists in Europe can beat the British and American competitors?
And can you explain how the Brexit will help to help the British economy to fund their huge debt?
Thanks in advance
Kind Regards
PS Those who moved the money from the UK to the Eurozone are richer today than some time ago. How is this possible? I need to learn more about “Economics” in Oxford or Harvard. I do not understand the crash in the British Pound and it is all astrology to me. Maybe for you too.
Is English your 3rd language?
Fourth. Spanish fifth.
Kisses from Europe
Read public domain info, nothing hidden: https://en.wikipedia.org/wiki/TARGET2
So?
How do you compute it?
Thanks in advance
The Exibit 14 from the U.S. Department of Commerce is very hilarious
It helps to understand a little bit more the Target2
https://postimg.org/image/p85nkpm2b/
Of course if exists a flight of capital inside the Eurozone members that will show in the accounts of the Target2. But doesn’t mean the current flows are flight of capital. Could mean normal current of capitals derived from investments, for instance.
Non accountants do not understand these particular tricks but they can always start to learn basic Accounting. I did thirty years ago. It was funny.
Kind Regards
“It helps to understand a little bit more the Target2”
How?
Your link is for trade between US and Europe.
Target2 deals only with flows within the eurosystem. You need to check trade between european partners. Imbalances not square with trade (surplus / deficit) likely due to flight (or landing) of capital.
…
“But doesn’t mean the current flows are flight of capital. Could mean normal current of capitals derived from investments, for instance.”
Sure sure … the recent capital flows out Spain/Italy “normal”.
I’m starting to look at American economic statistics the same way I used to look at those from the Soviet Union. We used Samuelson’s Economics in college. When I heard about the graphs inside the cover describing skyrocketing USSR GNP compared to US GNP years later I had to go back and look. Sure, I’d seen them, but completely ignored them and any implications thereof because any rational person knew they were ridiculous. This in the top econ text in the country. It’s just like much of the rest of the propaganda folks ignore every day. These leftist sacks of horse manure are a lot less successful than they think they are.
“Soybean exports will add about 1% to [third-quarter] GDP growth,” Ian Shepherdson, chief economist at Pantheon Macroeconomics,
Thanks.
From here on I will remember Shepherdson as the “soybean dude” … and to be ignored.
Waiting for the USA Apparel Imports numbers to come out today – from March through July the numbers are DOWN 5% from last year – indicating a strong slowdown in the economy. Read an interesting article yesterday on profits UP at 3rd party logistics warehouses – from STORING inventory!! NOT good economic signs.
My wife works in the fashion industry (she does forecasting). The Hanjin bankruptcy is causing havoc with garment imports. There are thousands of containers of goods stuck in limbo because of the bankruptcy. My wife has been pulling her hair out trying to get good delivered. This issue will likely have a direct impact on the next data release on garment imports.
Sounds like “go long” wigs….
Bottom line; Did anyone expect negative GDP “Growth” going into an election?
Bottom-Bottom Line: Does anybody really care?
…other than parasitic money trading vermin
Pretty sure it was supposed to be “4% due to soylent green” not “soybeans”.
Maybe all those old Medicare leeches are worth something after all?…..
Nice analysis, Mish. I love it when someone crunches the numbers to PROVE something is nonsense. That’s why I come here everyday.
Truly, innumeracy in the media is a plague….examples abound.
“IMF cuts growth forecasts for major economies”
http://www.wsws.org/en/articles/2016/10/05/econ-o05.html
They completely overlooked the soybean factor!
Most people take their food supply and farmers for granted.
Looks like global warming is good for the farm belt.
Thank you very much Tonny Bennet, for your care.
“Target2 deals only with flows within the eurosystem. You need to check trade between european partners. ”
Obvious. So? How do you compute a car manufactured in Spain sold in the USA by the Volkswagen?
I wish to know.
“Sure sure … the recent capital flows out Spain/Italy “normal”.”
You can not prove those only with the Target2.
That is the problem. It is like to try to play stock markets looking for the chicken production in Minnesota. Some do it and maybe are successful. In the USA any one can make miracles. Including using target2 flows to sell to his costumers bad investment advice.
Best Regards
PS Maybe explains why the socialists europeans beat the comrades Americans in their capitalist game. Who knows?
“Obvious. So? How do you compute a car manufactured in Spain sold in the USA by the Volkswagen?”
Setting aside the fact you are referencing trade outside of the eurozone, Target2 is calculated by settlements between banks within the eurosystem. Easily calculated. The murkier part – as you mention – is sifting through the settlements and deciding which bucket to put the settlement in 1) trade or 2) capital out/in flow.
Imperative to know the trade figures among the euro countries first before looking at (possible) capital flight.
But, if you think the banks in Spain and Italy are well capitalized. Dream on.
Game, set, match. Buenas noches, Brexiter. PS are you a costumer?