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Global corn competition gets difficult

In a Washington, D.C., office building, Tom Dorr, president and CEO of the U.S. Grains Council, takes stock of big changes sweeping the global grain trade.

“This year, for the first time, the U.S. will export less than 50% of the corn exported around the globe,” says Dorr. His group has a membership list that's a who's who of agriculture: ADM, Cargill, John Deere, American Farm Bureau Federation, National Corn Growers Association, state checkoffs.

The Council has promoted U.S. exports of barley, corn, milo, and now distillers' grains for more than half a century. Not long ago, the U.S. had at least 60% of the global corn trade. But as ethanol has taken a growing share of our own corn, competitors are meeting the demand for exports.

Last year, for example, Ukraine doubled its corn production over the previous year and tripled its corn exports. It sold enough corn to tie Argentina for second place among the world's corn exporters. A recent USDA forecast put both nations' total sales at 14 million metric tons (mmt) apiece. That's in the current trade year, which ends in September.

It's still far behind the 43.5 mmt of corn that the U.S. will export from the 2011 crop. Ukraine's total corn crop of 22.5 mmt, or about 886 million bushels, is a little more than the 839.5 million bushels grown in Indiana last year.

Even so, competition from other exporting nations is starting to add up. Brazil is the next biggest corn exporter, at 10 mmt (far less than its 36.9 mmt of soybean exports). Even India, once a nation dependent on food aid, now exports 2.4 mmt of corn, just behind the European Union's 2.5 mmt. Altogether, global corn exports will total 96.3 mmt by next fall, and the U.S. share will be 45%, if USDA forecasts hold up.

Demand booms, too

Last February, just as the USDA released its 10-year projections for global food production and exports, the U.S. Grains Council put out its own ambitious report, Food 2040, which anticipates how Asian consumers will affect exports nearly 40 years from now.

The report extrapolates current and future buying habits of affluent Japanese consumers to China. The U.S. Grains Council expects China to have the largest economy in Asia in 2040, even after India overtakes it in population.

Dorr points out how computing technology has changed in a similar time period and says the U.S. Grains Council can't know what the global food market will be like. “Food 2040 is not designed to be a prediction. It lays out a number of possibilities,” he says.

Among the possibilities is an aging but prosperous Chinese population in a segmented market with its own food safety system. Niches include foods with health benefits. Because China's market is so big, its standards will dominate global trade.

One result for the U.S. may be a shift from bulk commodity exports to greater use of containers, and even from selling commodities like feed grains and wheat to selling more meat and pasta.

Dorr is not a pessimist. He believes U.S. farmers and businesses will figure out how to compete. And he also sees an astounding array of new markets beyond China's borders.

“If you look at Bangladesh, it's doing very well,” he says. “It's importing corn and it's feeding livestock, and it has the economic wherewithal to do so.”

Breaking it down

Every year in February, the USDA marshals the work of Foreign Agricultural Service (FAS) staffers around the globe, other key agencies, and a small army of economists to project the planet's trends in raising food and eating it. Printed copies of USDA Agricultural Projections to 2021 were released at the Agricultural Outlook Forum 2012.

You can find the 96-page report at the website of the USDA chief economist (www.usda.gov/oce/commodity/index.htm). Like the U.S. Grains Council report, it's not a prediction. It projects current trends into the future. Those trends include a weak dollar that makes U.S. commodities competitive, continued world economic growth (slower in Japan, Europe, and the U.S. than in the developing world), and high oil prices. Like most projections, this report assumes normal weather and increasing yields (at the rate of 1% a year for corn, less for other feed grains).

Global trade in corn is projected to grow 31% by the 2021-22 marketing year. The U.S. share of that trade falls from an average of about 55% in recent years to 47%, still bigger than any competitor.

China accounts for 45% of growth in corn imports, hitting 18 mmt by the end of the decade to become the largest national market. (China is expected to buy 4 mmt or more this year.)

Even 10 years from now, China's share of imports is smaller than the Middle East and parts of Africa, which USDA lumps together for that top spot. That region accounts for 25% of future growth.

Mexico, always one of our top markets, buys nearly 16 mmt of corn and 4.2 mmt of grain sorghum by 2021. It has nearly 20% of growth in trade for coarse grains.

Southeast Asia is another growth area. Japan, South Korea, and Taiwan remain big, but stagnant, markets.

New players in corn production mean lower prices, according to the USDA, with the average price for this year's crop hitting $5 a bushel, followed by a $4.30 average in 2013-14. Prices slowly recover, hitting $4.65 by the end of the decade.

Bringing benefits home

American agribusiness companies have long had a global reach. International growth of agricultural production adds to their bottom lines.

In a March report to investors, Deere & Company says it has aspirations to double sales from 2010 to 2018, with much of that growth in the BRIC nations (Brazil, Russia, India, and China). Last year, Deere's biggest growth in sales was in Russia and former Soviet Union nations like Ukraine – 89% above 2010. Sales volume in that region, at $1.4 billion, isn't yet a tenth of the $15 billion in equipment sold in the U.S. last year.

At DuPont's seed subsidiary, Pioneer Hi-Bred in Johnston, Iowa, Dennis Judd also sees growth. He's the marketing director for Asia Pacific, China, Europe, and Africa.

“We're having a great year in Ukraine,” Judd tells Successful Farming magazine. After checking with other Pioneer staffers, he says sales are up 20% to 25% over the company's target for 2012.

That doesn't mean Ukraine is boosting corn acres by a fourth in 2012. Some of Pioneer's new sales come from gains in market share. But it signals expansion of corn production in the Black Sea region.

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Judd also sees potential for growth in Africa and the Middle East, which has 19% of the world's corn acreage but only 8% of production. In Nigeria, average corn yields range from 14 bushels an acre to 30. Only a third of the region's farmers plant hybrid corn.

“They want access to hybrid technology or improved products. But they can't get access because of lack of infrastructure, credit challenges, and biotech acceptance obstacles,” Judd says.

Pioneer recently announced it is opening a technology hub in Beijing that will employ nearly 50 researchers to develop better hybrids for Chinese farmers. China's average corn yields are about 100 bushels an acre, Judd says.

All of this may sound like more competition for American corn farmers. Judd believes the knowledge that his company gains from testing and selling corn hybrids in harsher climates and environments ultimately helps U.S. growers, who have competitive advantages over other growing regions.

“This is a tremendous place to grow corn,” Judd says of the U.S. Midwest. “It takes several of these countries to even add up to one Iowa in production.”

Growing and selling corn around the world helps the company's agronomists more quickly identify traits for disease and insect resistance and for drought tolerance, he says.

“You can translate that into management practices that agronomists in the U.S. can use in recommending varieties for a particular year,” he says.

And in many areas where corn production is expanding, farmers have much less experience growing the crop. In Ukraine, farmers planting corn this year know winter wheat best. They don't have a fertilizer and input system like ours.

“We know we can make some strides in that area. The question is, in the wheat area, how much can be corn area?” Judd says of Ukraine. And, as is true everywhere, “Planting isn't the same as harvesting,” he adds. “Getting it planted doesn't mean there are going to be above-average yields, either.”

Growth to watch in 2012

Ed Allen, an economist with USDA's Economic Research Service (ERS) in Washington, follows the same trends in Ukraine and elsewhere. Allen presented USDA's Grains and Oilseeds Outlook for 2012 in February. It's an early look at exports and production. (USDA releases its first 2012 breakdown by individual countries in its World Agricultural Supply and Demand Estimates on May 10.)

“If you look at the major corn producers, the corn prices have been relatively attractive. You would expect expansion across the board,” Allen says.

The grains outlook he worked on shows rising global corn imports, with U.S. shipments after this fall's harvest up 200 million bushels to 1.9 billion. It expects record global corn planting.

Ukraine will boost corn in 2012 after a dry fall and cold winter killed wheat.

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“Basically, about a third of the wheat acres are kind of up in the air,” Allen says. Farmers there will replant those acres with sunflowers, spring barley, and corn, with corn an attractive choice.

In April, Ukraine's ag ministry estimated that about 6.2 million winter wheat acres will shift to summer crops.

Argentina's corn crop was hit by drought, as was part of Brazil's first crop. But Brazil's farmers also grow a second corn crop after beans, a record this year.

“It's that second crop in Brazil that will provide some competition for the end of our 2011-12 marketing year and the beginning of the 2012-13 year,” Allen says.

The Brazilian government's recent estimate of the second crop, planted starting in January, is 6.7 million hectares (or 16.5 million acres). That's 14% more than the year before. Corn from first and second crops totalled 15.3 million hectares, yielding 61.7 mmt (or 2.4 billion bushels). Brazil's average corn yield this year is expected to be 67 bushels per acre.

Allen also expects “a modest expansion in Europe for corn.”

China is a challenging country for USDA analysts. Its government policies affect its corn supplies and farmer plantings. It has many different corn regions. “It's a big country. It's like generalizing about U.S. wheat,” Allen says.

It has no spare land for expansion of corn. Allen thinks corn acres might grow 1% to 2% this year on other cropland.

“The role of China in the corn market is going to be a crucial wild card,” he says.

A closer look at China

What China grows determines what it buys. China has abandoned self-sufficiency in soybeans and may soon lose that struggle with corn. Because it was the top buyer of U.S. Ag exports in 2011, listeners perked up when USDA Chief Economist Joe Glauber told the Outlook Forum in February: “Exports to China are expected to fall by 15% this year …” Glauber referred to the 2012 federal fiscal year, over at the end of September. That's a month after the start of the 2012-13 marketing year for crops growing now.

Glauber's reference to falling old-crop sales to China is mainly due to competition from cheaper soybeans from South America's stocks from a year ago (before last winter's drought), explains Michael Dwyer, director and chief economist of the FAS office of global analysis.

“In China, two thirds of our exports are soybeans alone, so we pretty much live and die by soybeans,” Dwyer says.

In fact, China is importing more soybeans from all sources this year than last. Its demand for corn, while much smaller, has “a lot of upside potential” this year, adds Oliver Flake, FAS senior economist.

Economists Fred Gale and Mike Jewison, both ERS experts on China, may be even more optimistic on U.S. corn and soybean exports to China.

“It looks like sales of both commodities are strong right now,” Gale says.

U.S. corn is especially attractive to livestock farmers in South China, a corn-deficit region, adds Jewison. “There's a significant price difference right now,” he says. Local corn sells for about $400 a metric ton vs. $300 a metric ton for imports from the U.S.

Gale says China has already bought more than 4 mmt of U.S. corn this year and might buy as much as the 7.2-mmt level that triggers a tariff rate quota. “As long as U.S. prices are favorable, China will probably keep importing,” he says

“It looks like China is in almost a new stage where food imports are rising more rapidly than they did over the previous decade,” Gale says.

Other key corn markets

Japan will buy more than 16 mmt of corn this year, mostly from us, and it's our largest market. It's not growing.

Mexico's market is, due to the worst drought in 70 years, and a growing livestock market, long term. It likely will import 10.5 mmt this year. “When Mexico imports, it's virtually all from us,” says Dwyer. South Korea, a market almost as big, will buy 8 mmt of corn this year. Yet, Oliver says, Korea's sophisticated feed mills, “will easily switch between corn, wheat, and other crops.” 

China Bean Boom Benefits Brazil, Too

China is the world's biggest soybean importer, buying about 55 million metric tons (mmt) this year, more than half of the global trade in beans. It's our biggest market, too, buying more than half of the 34.7 mmt that USDA expects our country to export in the current marketing year.

Although U.S. soybean exports to China may be off some from a year ago, the USDA long-term projections are for continued growth in that market over the next 10 years.

USDA Agricultural Projections to 2021 paints a simpler picture for soybeans than corn: ballooning demand in China, tied to dramatic growth in soybean exports from Brazil.

USDA projects 31% global growth in soybean trade, rising from about 90 mmt this year to 137 mmt by 2021. More than 80% of that growth will come from China. “The projections assume that Chinese policies will pursue increasing corn production and letting soybean imports increase,” the report says. USDA sees soybean exports to Europe and Japan declining. Mexico, Egypt, Iran, and Turkey are other, much smaller, growth markets.

Soy suppliers will remain about the same. The U.S., Brazil, and Argentina now sell 90% of global exports; by 2021 they'll sell 87%. Brazil's exports should rise 43%. Land planted to soybeans in Brazil will increase by about 2% annually, according to the USDA projection. 

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