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Global corn acres up for grabs

The U.S. will rebound this year, regaining the top rung of the world’s corn export ladder, but Brazil and Argentina combined will export more corn than the U.S.

“In 1979, U.S. exports accounted for about 10% of the world’s use of corn,” says Daryll Ray, Agricultural Policy Analysis Center, University of Tennessee, Knoxville. “By 2010, that number had fallen to 4.34%.”

The U.S. is paying a price for record-high profits in the form of greater global competition. These acres will stay in production for years unless there’s a prolonged price slump, Ray says.

“Increased global acreage, especially in South America and the Black Sea, has been expanding dramatically in response to higher prices,” agrees Sterling Liddell, Rabobank Food and Agribusiness Research and Advisory Group. “During the last five years, poor weather and increased demand caused demand to outpace supply, creating an environment with substantially increased margins.”

As a result, foreign buyers learned to turn to competitors to supply their needs. “It may not be their first choice, but they’ve learned it’s a workable option,” he says.

The USDA projects that global coarse grain supplies for 2012-2013 will increase by 2.1 million tons. What’s the risk that the U.S. will become a residual supplier?

Here’s a look at how the competition stacks up.

Brazil

Brazil’s winter corn crop (the second crop, referred to as the little crop) has grown dramatically. Since 2000, Brazil has doubled its corn production, largely on the shoulders of its second-crop corn.

Although Brazil exported about 21 million metric tons of corn this past year, limited storage still hampers its flexibility in global markets. It lacks an efficient transportation infrastructure, and its southeastern and southern port regions are saturated.

University of Illinois ag economist Peter Goldsmith has studied Brazil’s state of Mato Grosso for a dozen years. He points to its chronic 10% postharvest loss.

“Losses occur in three areas: grain left in the field after harvest, grain that falls off trucks in transportation from the field to storage or commercial sale, and loss of private storage,” he says.

“There’s a 34% under-capacity of soybean storage, and the situation is aggravated by the rapidly increasing production of second-crop maize,” he adds.

Nonstop, year-round farming in the tropics has its disadvantages, Goldsmith says. “Farmers have to harvest soybeans during the rainy season, because if they wait until the rain ends to plant corn, the corn won’t get pollinated due to the onset of the dry season. The equipment is in constant demand, far from farms. Combines and trucks aren’t maintained properly,” he says.

Domestic corn prices are below cost of production. Brazil is expected to cut both full-season and second-corn acres and to plant more beans.

Argentina

Argentina has doubled its corn exports since 2003. Argentina is the fifth-largest corn producer in the world, with the bulk grown in Buenos Aires and Cordoba provinces. Argentina produced a record corn crop in 2013: 25.7 million metric tons, up from a drought-reduced 21.5 million last year.

Corn acres in Argentina, the second-largest corn exporter, are down 6% this year, due to cool and dry weather in the Pampas.

Russia

The former Soviet Union is increasing its wheat exports. The USDA projects that Russia’s wheat exports alone will more than double those of the U.S. by 2019.

Corn shipments are expected to grow to an all-time high of 3 million metric tons in 2013-2014, up from 1.9 million tons the past season.

China

China is the world’s second-leading corn producer. It grew another record corn crop in 2013, its third or fourth in a row. Favorable weather has contributed.

China isn’t reaching its goal of self-sufficiency; it’s not an export competitor. “China is rapidly moving to buy South American soybeans and corn,” Liddell says. It recently bought 3 million hectares (over 7 million acres)in Ukraine. That’s 9% of Ukraine’s arable farmland.

Ukraine

Ukraine exported 8.6 million metric tons of grain between the current marketing year July 1 and October 25, a 9.0% spike over the prior marketing year. This includes 5.1 million tons of wheat, 1.8 million tons of barley, and 1.6 million tons of corn.

Total grain harvest this year is estimated to reach 53 to 54 million tons, up from 46.2 million last year, when crops were damaged by drought. (Wheat exports are limited this year, due to heavy rainfall.)

“It’s taken 20 years for Brazil,” says American Jeffrey Rechkemmer, who farms in Ukraine. “Ukraine is the size of Texas with 43 million hectares (125 million acres) of arable land that’s the quality of Iowa soils. In the last five years, it’s become a global competitor. It has infrastructure, ports, roads – everything Brazil didn’t have. It just needed capital and experience.”

Corn production in Ukraine has increased by more than 60% since 2008.

“It accentuates the hurdles for the U.S. global market share,” Liddell says. “The estimated median U.S. farmer’s cost of production is $4.50 to $4.60 per bushel. It’s $5.20 for high-cost producers. The U.S. is a high-cost producer.”

What’s ahead

Some stimulus will be lost as prices return to lower levels. Over time, U.S. exports will rebuild.

“It won’t be simple to wipe away,” Liddell says.”Brazil farmers like corn. It counteracts pests and

weeds and adds nutrients. Brazil’s corn doesn’t need high yields – it’s used to generate income on fixed-asset land. There’s a case for corn to continue.”

Emerging short-season corn varieties also are a factor in increased competition.

Infrastructure will be a key competitive advantage. Jim Knuth, senior vice president, Farm Credit  Services of America, points to the 2015 completion of the Panama Canal expansion, which doubles shipping capacity.

“It will help imports and exports in the central and eastern U.S, but it will shorten the route from Brazil to China by 1,700 miles,” he says.

Drought shriveled corn yields, but Illinois producer Roy Wendte says an ample supply of eastern Corn Belt corn is ready to ship down the Mississippi. He knows that U.S. farmers have a hard row to hoe.

“We don’t have a lock on exports,” he says. “The competition is global.”

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