The tight supply/demand conditions for corn in the U.S. market for the 2011/12 marketing year that began September 1 will have an impact around the world as some users of corn seek alternatives. Projections by the World Agricultural Outlook Board (WAOB) of USDA released on September 12 show U.S. corn exports this year at 1,650 million bushels (41.9 MMT), down from 1,835 million bushels (46.6 MMT) in 2010/11 and 1,980 million bushels (50.3 MMT) in 2009/10. Total world corn trade is expected to be up slightly this year over last year.

 

Year-to-year variability in U.S. corn exports is normal. Since 1975/76 when exports were 1,664 million bushels and became a significant part of the U.S. demand picture, exports have averaged 1,887 million bushels annually with two peaks at 2,402 million bushels in 1979/80 and 2,436 million bushels in 2007/08. In the 27 years between the two peaks, exports were at or below 1,650 million bushels seven times, including as recently as 2002/03 at 1,588 million bushels.

The U.S. is the largest producer of corn and the largest exporter. In 2010/11, the U.S. produced 316.2 MMT and exported 46.6 MMT. According to estimates by the Foreign Agricultural Service (FAS) of USDA, the next largest producer was China at 173.0 MMT, followed by Brazil at 57.5 MMT, the EU at 55.9 MMT, Argentina at 22.0 MMT, India at 21.3 MMT and Mexico at 20.6 MMT. Of total world exports in 2010/11 of 91.7 MMT, the U.S. provided 50.8 percent. Argentina was number two at 15.0 MMT, 16.4 percent of the total, followed by Brazil at 11.0 MMT, 12.0 percent, Ukraine at 5.5 MMT, 6.0 percent, and India at 2.8 MMT, 3.1 percent.

World corn exports for 2011/12 are expected to be up 0.4 MMT to 92.1 MMT, with Ukraine up 4.5 MMT, Argentina up 3.0 MMT, U.S. down 3.0 MMT and Brazil down 2.5 MMT. U.S. exports of 41.9 MMT would be 45.5 percent of the world total, the first time in 40 years that the U.S. market share for corn has been below 50 percent. That number is skewed by exports of distillers dried grains with soluble (DDGS), a co-product from ethanol production from corn that is used for livestock and poultry feed, but not included in corn exports. DDGS exports could be 9.0 MMT in 2011/12. If these were added to the U.S. and world corn exports, the U.S. percentage would be above 50 percent, but still historically low.

Corn is part of a larger category called coarse grains including grain sorghum, oats, barley and rye that are mainly used for livestock feed and industrial products. In the U.S., because much of the land and climate is conducive to corn production, corn accounts for about 97 percent of coarse grain production and livestock feed. The world outside the U.S. is much more diverse in coarse grains. Corn is still the dominant coarse grain at 71 percent of total coarse grains, but barley is 17 percent and grain sorghum 7 percent. World barley, oats and rye production are expected to be up this year over last year, while sorghum production will be down.
Wheat, particularly lower quality wheat damaged by excess rain near harvest, is also used for livestock feed. Wheat fed to livestock in the U.S. usually accounts for 10-20 of domestic wheat use and less than 5 percent of total grain fed to livestock. In the EU, wheat fed to livestock accounts for about 45 percent of domestic wheat consumption and about 33 percent of grain fed to livestock. Australia and Canada feed similar percentages of wheat. China is projected to feed 17.0 MMT of feed wheat, about 15 percent of wheat consumption. Feed wheat is expected to be purchased by major corn importers like South Korea. Unconfirmed reports have indicated that 2010 feed wheat is moving from Canada to the southeastern U.S.

U.S. corn export markets will need to make some adjustments over the next year. In calendar year 2010 according to FAS, the U.S. exported 50.6 million tons of corn, with Japan the number one market at 15.4 MMT. That is not likely to change substantially if quality supplies remain available. Mexico was the second largest market at 7.9 MMT. Given the close proximity of Mexico to the U.S. that also is not likely to change, with the possible exception of some feed wheat from the U.S. or Canada. South Korea was the third largest market at 7.0 MMT and has a history of being price sensitive with substantial year-to-year fluctuations in corn purchases from the U.S. Egypt was the fourth largest market at 3.6 MMT and is a cost conscious buyer that will look at other grains and sources, as will Taiwan with 2.9 MMT in shipments in 2010, particularly if the 6.5 percent tariff on feed wheat is removed. Buyers like Canada will buy corn when needed, but also have feed wheat that will compete with U.S. corn.

With corn carryover stocks in the U.S. at the end of August 2012 projected by the WAOB at minimum pipeline supplies of 672 million bushels (19.6 MMT) there is no room for China to buy substantially more corn. Weather reports this summer from corn growing regions in China have generally been favorable. The WAOB projects Chinese corn production at 178 MMT, up from 173 MMT last year, and imports for this marketing year of 2.0 MMT, unchanged from earlier expectations. World stocks are not as tight as the U.S., but supplies will not be available for major purchases by China without some reordering of other purchases.

International grain markets are working as they should. Larger corn crops in Ukraine and Argentina are offsetting smaller export supplies from Brazil and the U.S. Other coarse grains and feed wheat are replacing corn in price sensitive importing countries and in domestic markets where corn and other grains compete on price. Corn production and import demand in the northern hemisphere this marketing year appear to be well reflected in current market prices. The cropping season is just starting in the southern hemisphere and weather problems could cause some market turbulence.

The ever present trade policy risk is that a corn buying country could become concerned about supplies and make some unexpected buys that cause other buyers to respond in kind. Or, a selling country could decide to exit the market for political reasons causing spot shortages to develop. Now is the time for governments in countries that participate in trade in all grains to maintain open communications about current and expected production and consumption levels.

Ross Korves is the Economic Policy Analyst for Truth About Trade & Technology