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Corn exports lose ground
Strong U.S. corn exports have been losing traction. Record-high prices have created demand destruction among reliable customers. Global competitors are sharing the stage – and even being cast in lead roles.
In 2012, U.S. corn exports totalled 715 million bushels, the lowest level since 1970. The U.S. fell to third-largest corn exporter behind Brazil and Argentina. The severe drought is an obvious explanation. Daryll Ray, Agricultural Policy Analysis Center, University of Tennessee, says that the drop is part of a long-term trend dating back about 50 years.
In 1960, U.S. exports were almost half of world corn exports. “While both U.S. and non-U.S. yields nearly tripled between 1960 and 2010, U.S harvested acres increased by 14%,” Ray says. “At the same time, non-U.S. corn harvested acres increased by 79%.”
Non-U.S. corn exports reached 1 billion bushels in 1999; they hit 3 billion bushels in 2011 and 2012, Ray says. The rate of increase in non-U.S. corn yields also is expected to accelerate.
“The market has called on the U.S. to supply over 13 billion bushels of corn every year,” says Sterling Liddell, Rabobank Food and Agribusiness Research and Advisory Group. “The country has met that goal only twice – in 2007 and 2009.”
One reason is the driving piston of ethanol demand, beginning in 2007. The USDA projects 4.9 billion bushels of corn will be consumed by ethanol production this year, down from a high of 5 billion in 2011.
Declining U.S. gas usage and bumping into the 10% ethanol blend wall also signal an ethanol plateau. EPA may propose reducing the renewable fuel mandate for 2014.
“Headwinds are developing,” Liddell says. “Even if we get to the blend wall for ethanol in the next two years, we’ll have export challenges.”
The U.S. is expected to remain a strong player, but corn exports will have to rebuild for several years. In the 2013-2014 marketing year, USDA is forecasting the U.S. to export 43.2 million metric tons of corn (1.25 billion bushels), a bit more than 40% of total world exports.
Higher U.S. grain stocks also will make exports more competitively priced. Without a strong export rebound, will carryover drag prices below the cost of production for U.S. farmers?
Emerging factors including world population growth, rising incomes, and pent-up demand are brightening the export horizon. By 2022, 82% of the world will live in developing countries, up from 80% in 2010.
Kevin Roepke, manager of global trade for the U.S. Grains Council, says new developing countries are coming into their own in terms of corn consumption: Mexico, Indonesia, China, and South Korea.
The USDA estimates that over the next 10 years, these countries (known as the MICKS) will account for 9 million metric tons (1.1 billion bushels) of global corn import growth vs. just over 20 million tons (787 million bushels) for the rest of the world.
“That’s exciting when you figure that it’s new demand,” Roepke says.
Over the next 10 years, USDA states that China and Mexico will surpass Japan and become the world’s number one and number two corn importers. South Korea is forecasted to increase corn imports by almost 20%.
U.S. farmers won’t necessarily be the sole beneficiaries of China’s increasing feed needs. Sales to China have already reached 116 million bushels, compared to the current marketing year of only 98 million bushels.
Market observers say China is on the verge of becoming a permanent large corn importer. Its recent record crops are due more to favorable weather than to improved production techniques, and they are insufficient to satisfy domestic needs. Even with improved technology, its corn yields only are about 60% of U.S. yields.
Growing meat demand underpins China’s feed-input imports. China is the largest hog feeder in the world. In the past few years, it’s added more hogs than there are hogs in the U.S.
However, China has a checkered track record as a reliable import partner, Ray says. “In the mid-1990s, China imported corn for a year or so, but projected mammoth import growth didn’t occur. China also is acquiring production resources in other countries, with the aim of growing crops to ship back to China.”
Mexico is forecast to nearly double its feed grain imports in 10 years.
“The MICKS represent some of the world’s fastest developing countries and also the largest growth markets for global feed grains, especially corn,” Roepke says. “Everyone knows China’s potential, but Mexico goes under the radar, and South Korea is dubbed as a mature market.”
Recently the USDA announced the sale of 7.1 million bushels of corn to Colombia. The U.S. has been unable to compete because of unfavorable duty treatment. This was reversed by the U.S.-Colombia Free Trade Agreement.
Will lower prices curb corn acres and dampen exports?
Not everyone is optimistic. A Rabo AgriFinance report earlier this year stated that a potential reduction of U.S. corn acres might slow the pace of U.S. export recovery.
“The three largest drivers of U.S. grain prices over the next few years will be demand from the U.S. ethanol industry, import demand from China, and supply performance in Brazil,” Liddell says.
“We anticipate U.S. corn exports will struggle to regain 2009 levels, as farmers are impacted by tighter margins,” he says. “Farmers will be forced toward cost efficiency, productivity growth, and tighter financial management, and away from investment and business growth.”
He points to the increase in corn-after-corn production and expanded acres of corn grown outside of the Corn Belt, both of which decrease overall yield per acre.
Research and technology will play a pivotal role in growing U.S. production. “The challenge will be to match specific seed genetics to soils and environments and, at the same time, to protect yields and desired traits,” Liddell says.