Market Matters Blog
Katie Micik DTN Markets Editor

Tuesday 11/20/12

How Long Will U.S. Stay King of Corn Exports?

Anyone who's watched weekly export sales and shipment numbers knows that it's going to be a slow year for corn exports. Corn inspections for the current marketing year to date are 44% behind where they were a year ago. Farmers hauled in a drought-shortened crop this year, estimated to be about 10.7 billion bushels, so the reduction is really no surprise. The crop is just too small to go around.

But what about the longer term picture? U.S. dominance of the corn export market is likely to keep shrinking, Purdue University agricultural economist Phillip Abbott argues.

"The U.S. has historically been a very important part of the international corn market," Abbott said in a Purdue University press release. "Prior to the 2007-08 food crisis and spike in commodity prices, the U.S. exported well over half the amount of corn that entered international markets. Since then, the high prices have caused the rest of the world to expand their production and become more self-sufficient.

"Even if we get bigger corn crops in the future, it's likely that the demand in foreign markets will not soon recover to the level that it once reached."

Ethanol and increased corn acreage overseas are the two primary factors that will curtail U.S. corn export market dominance. Abbott notes that the U.S. exported 2.4 billion bushels of corn in the 2007-8 marketing year compared to the 1.1 bb expected to be exported this year, according to USDA statistics.

Take into account the Renewable Fuel Standards, which mandate 5.5 billion bushels of corn go into ethanol production. "Roughly 40 percent of the corn that's produced in this country is used in ethanol, although some of it is later used as distillers grain for livestock feed," Abbott said. "That's up from about 10 to 12 percent five years ago. The amount of corn that makes up the increase is more than we export."

Ethanol helped generate the demand market corn's enjoyed over the past five years. It's the demand market that's made corn such a profitable crop, and farmers in other corners of the world want to take advantage of higher prices, so they're planting more corn (and more crops in general).

Since the late 1990s, South America's crop acreage has increased 53% while former Soviet Union crop acres are up 24%. Argentina and Ukraine have emerged as strong alternative sources for corn in recent years. Each country has its obstacles -- consistent production in Ukraine and government policy in Argentina -- but will likely make progress, expanding its market share in the process.

Meanwhile, the U.S. can't keep pace with these acreage increases. Most of the workable farmland in the U.S. is already in production and while corn has take acres from other crops, it's still not enough to supply all of our domestic needs while maintaining or expanding our corn exports.

"We've tried to accommodate the export markets by working to increase production, but we haven't managed to do that," Abbott said. "We've had to keep feed use flat and watch exports shrink.

"All the hard work we did to build export markets has been hurt by the high commodity prices of the last four or five years. As a result, the world has figured out ways to meet their own needs. And with a couple of exceptions like China buying more soybeans, we're probably going to see weaker export demand in the future."

Posted at 9:55AM CST 11/20/12
Comments (6)
Gulke has alluded to this also. Once you lose a customer, it takes alot of work to get them back. Time and time again, I come across producers who are so focused on supply and totally forget about demand. A year ago, it was a foregone conclusion that if we had a drought, corn would be over 10 and beans over 20. And if you had said a drought as bad as the dust bowl, 10 and 20 would have been passed like they were standing still. Why didn't it occur? The demand base wouldn't support it. I once was told that demand markets are so much stronger and longer lasting than supply markets. This is so true. This article is not good news. But hence human nature. We have to go to extremes to find the middle.
Posted by Brandon Butler at 2:13PM CST 11/20/12
Brandon, Spot on bro. . . . . .one factor I see as a huge problem is the fact that with cash rents, inputs and human nature (the ability to be enticed by the selfish nature). . . . . . farmers are needing these high prices to make things work. What happens when the price of crops dips below price of production?? The American Farmer has the God given ability to make adjustments, but if the unexpected happens and the perfect storm aligns against them then it puts at risk the business of farming. I hope the inflated numbers and the inflated expectations don't derail some producers from the facts on the ground. The capital to farm is very large. Fariming is a huge risk. The seperation and the lines will only continue to widen. Don't put all you eggs into one basket. There is a way that seems right to man but in the end is death. Bruce
Posted by Bruce Cumberland at 5:21PM CST 11/20/12
Mr. Abbott certainly tries to dismiss DDG's as inconsequential, "Roughly 40 percent of the corn that's produced in this country is used in ethanol, although some of it is later used as distillers grain for livestock feed," Abbott said. 1/3 of every bushel comes back as DDG's, meaning we only use in the 23% range of the corn crop for ethanol, not the 40% you describe. The ethanol industry has created more wealth in the CornBelt states economies than any other structural demand change in modern history, delivering great benefit to U.S. consumers and the country in general. Yet, all we hear from the commercial livestock sector is how they lost their birthright to subsidized, below the cost of production corn as a result.
Posted by Lane Robinson at 5:47AM CST 11/21/12
Mr. Robinson is the one that is on target in this discussion, in my opinion. In the 40 years of my farm experience we, as livestock and grain producers, have been paranas feeding on each other. The ethanol business has brought new dollars into agriculture for the first time. Even though I live in a livestock dominated area, Wyoming, the new money in one segment of agriculture seems to me to have driven wider and wider demand for all commodities. For example the segment of feeding that is now dependent on DDGs as part of their ration is large here hundreds of miles from any ethanol production. Another example would be that this is the first time in my memory when both corn and slaughter cattle prices set record high prices in the same year. My argument would be that we should cheer when our neighbors have new dollars in their pockets as that drives new demand for our products by either fresh demand or increased competition for the production base (acres). I am glad that I survived in agriculture long enough to see the fresh demand for so many segments of our production because there was some doubt if that demand was there during the last 40 years. Mike
Posted by Mike Baker at 9:21AM CST 11/22/12
I'm with Mike and Lane! The American corn farmer and the U.S. taxpayer have both spent a lifetme livin' and dyin' on the whims of an export market for grain! Ethanol production has been a game changer for both! Just ask the farmer in the Dakotas who used to have a -70 corn basis -------- he's happy and the taxpayer should be too! As for feed use? It's been a flat line for over 20 years (look at a balance sheet)! As for corn exports? It hasn't changed much in my 34 year career! I am very cool with choices for corn farmers! It's about time! Thanks for puttin' up with me!
Posted by Roger Cooper at 12:00PM CST 11/22/12
Don't forget the same USDA (WASDE) that does the domestic production; also does the foreign production forecast for Argentina and Ukraine. Ukraine is able to double production from year to year?
Posted by doug taylor at 9:58PM CST 11/22/12
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