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Corn export competition

11/16/2012 @ 10:00am

With the smallest U.S. corn crop in nine years now in the bin, attention turns to marketing that crop. This year, marketing doesn't appear to be a big problem. Most analysts say the problem is not in finding buyers for 2012 corn, but in rationing the limited supply.

In fact, based on USDA's supply-and-demand estimates, every kernel harvested this fall is figuratively spoken for – and then some. Based on its October harvest estimate, USDA predicts that 2012-2013 demand for U.S. corn will exceed production by 444 million bushels. Corn users will have to dip into already-tight old-crop reserves in order to make up that 444 million bushels. The U.S. will even import corn.

Still, U.S. farmers will market their corn at record-high prices, which USDA says should average somewhere between $7.10 and $8.50 on a cash basis.

U.S. losing market share

Fortunately, with ethanol production mandated by the government, it's not hard to find a domestic market for much of U.S. corn, even at these prices. But export markets are another story.

The U.S. has seen shrinking corn export volume for the past two years, with an even bigger drop in the U.S. share of global corn trade. After decades of U.S. share of global corn in the 60% to 70% range, U.S. share is expected to fall to just 36.9% this year.

Put another way, the last time the U.S. corn harvest was as small as 2012's – in 2003 – the U.S. still exported 18.8% of its corn crop. But this year, the U.S. is estimated to export less than 10.8% of the crop.

Most of the U.S. drop in global market share has occurred in just the past several years. As recently as 2008-2009, the U.S. filled 56.9% of world corn trade. It dropped to 53.5% in 2009-2010 and to 49.2% in 2010-2011. A big drop occurred in the 2011-2012 marketing year (September to August), when the U.S. captured just 38.4% of the world corn market.

Some observers put partial blame on foreign concerns about U.S. corn quality after problems related to the wet 2009 harvest. But most analysts simply blame shrinking exports on the reduced harvests of the past couple of years.

“It's a function of the market,” says Ken Smithmier of the Hightower Report. “After those short crops, our prices are higher than other suppliers.”

Indeed, foreign grain buyers have turned to a host of other countries for corn. The largest supplier of corn after the U.S. is Argentina, which has boosted its world market share from 18.25% in 2009-2010 to an estimated 19.25% this year.

Brazil, already a major competitor for U.S. soybeans, has seen its world corn share rise from less than 9.3% in 2009-2010 to 16% this year.

“Brazil has been more purposeful recently in developing its land for corn,” says Erick Erickson, director of global strategies at the U.S. Grains Council, a cooperative effort that focuses on promoting U.S. feed grains overseas.

Reports suggest that, on the export market, Brazil and Argentina can undercut U.S. corn prices by 50¢ to $1 a bushel. And Ukraine is said to sell corn in export markets at about $2 a bushel below U.S. corn. (Analysts say that Brazil corn would be even cheaper in the export market if Brazil's internal transportation and grain infrastructure were better.)

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