China was the largest destination for U.S. agricultural exports in FY 2011, importing just shy of $20 billion. Just five years ago they were our 5th largest destination after Canada, Mexico, Japan and the EU.

Exports to China are expected to fall by 15 percent this year reflecting the concentration of trade in bulk commodities like soybeans and cotton which accounted for 75 percent of total US agricultural exports to China in 2011.

Yet while U.S. exports to China are anticipated to fall in 2012, China import demand is expected to remain strong in 2012, accounting for over 60 percent of total world soybean imports and over 50 percent of world cotton imports.

The outlook for U.S. crops

Rather than going through the individual balance sheets, I will briefly touch on what I see are some of the main drivers in the current supply and demand outlook.

Record world crops. Record prices in late 2010 and through the first half of 2011 resulted in increased plantings and record production for grains and cotton. Soybean production, while off last year’s record, was still the third highest on record.

Global demand has largely kept pace with production.

Total wheat consumption topped 680 million metric tons, total corn use was over 867 million metric tons, and total rice use was 480 million tons, milled basis. All of these figures were records.

At 258 million metric tons, global soybean use was also a record in 2012. Unlike grains and oilseeds, demand for world cotton declined last year, reflecting sluggish world growth, particularly in the developed economies.

With the exception of corn and soybeans, strong production response in 2011/12 has resulted in stock rebuilding for most commodities. Wheat and rice stocks have rebuilt from low levels reached in 2007/08, though demand remains strong. Corn stocks have tightened further in 2011/12. World ending stocks for corn for 2011/12 expressed in terms of use are estimated at about 52.3 days of use, the lowest level since 1973/74.

Ethanol production slows as blend wall constrains expansion. After increasing by almost 700 million bushels per year over 2005-10, corn use for ethanol has flattened and is projected to fall by 21 million bushels in 2011/12.

Under the 2007 Energy Act, the maximum amount of conventional biofuels that may be applied towards the Renewable Fuel Standard (RFS) is 13.2 billion gallons in 2012. Current ethanol production capacity is estimated at 14.75 billion gallons.

The expiration of the Volumetric Ethanol Excise Tax Credit (VEETC) and the other duty and charges (ODC) on imported ethanol on Dec. 31, 2011 has meant that corn-based ethanol produced beyond the 13.2-billion- gallon mandate will have to be attractively priced to be profitably blended with gasoline.