The 2012 U.S. corn crop of 10.8 billion bushels was 12.9 percent lower than the average of the two previous crops, but global corn trade for the 2012/13 marketing year (October- September) is expected to be the second largest, only exceeded by the 2011/12 year. Brazil is projected to almost double exports to 24.5 million metric tons (MMT), and other exporters and importers are making smaller adjustments. Producers and consumers are responding to market forces.

The U.S. has traditionally dominated international corn trade. As recently as 1994/95 and 1995/96, the U.S. accounted for over 80 percent of global corn exports. U.S. corn export volume peaked in 2007/08 at 61.9 MMT with a market share of 63 percent. The U.S. has had three consecutive years with less than trend corn yields that have led to higher international market prices and given other corn producers the incentive to expand production. U.S. exports declined to 39.2 MMT in the 2011/12 marketing year (September-August) and a market share of 34 percent. Exports for 2012/13 are projected by the World Agricultural Outlook Board (WAOB) of USDA at 24.0 MMT, a 25 percent share of global exports.

A U.S. Secretary of Agriculture once said, the cure for high prices is high prices. The WAOB corn price range mid-point for the U.S. 2012 corn price is $7.20 per bushel, up from $6.22 per bushel at the farm for the 2011 crop, $5.18 per bushel for the 2010 crop and $3.55 for the 2009 crop. For the 2005 U.S. corn crop the average market price was $2.00 per bushel.

For the first four months of the 2012/13 marketing year, U.S. exports have been 7.0 MMT, down from 14.7 MMT a year earlier. Japan normally buys 15-16 MMT of corn annually from the U.S. It shipped 11.5 MMT in 2011/12 and 4.1 MMT in the first four months. This year Japan shipped only 2.6 MMT in the first four months. Mexico usually buys 7-8 MMT per year. Mexican customers shipped 3.1 MMT in the first four months last year and 1.5 MMT this year. China bought a recent high of 5.1 MMT last year, with 2.1 MMT shipped in the first four months. This year they have shipped 1.3 MMT in the first four months. South Korea normally buys 6-7 MMT annually. Customers bought 3.6 MMT last year, with 1.9 MMT shipped in the first four months. This year they shipped 0.35 MMT. Egypt has yet to ship any corn from the U.S. for 2012/13 after shipping 0.29 MMT in the first four months of 2011/12 and 0.50 MMT for the entire year. It bought 2-3 MMT in previous years.

Brazil has increased corn production from an average of 55.0 MMT per year in 2008/09-2010/11 to over 70.0 MMT last year and this year. Some of this increase is from the winter crop that is planted after soybeans are harvested in January and February. Brazil was able to bring extra corn acres to harvest in response to the lower corn production in the U.S. and the market reaction to the smaller output. If the current WAOB corn production projection for Brazil of 72.5 MMT for this year holds true, Brazilian exports of 24.5 MMT will make it the worlds largest corn exporter, surpassing U.S. corn exports of 24.0 MMT this year.

The other new major player in the international corn market is Ukraine. Production has increased from less than 4.0 MMT annually in 2000/01 and 2001/02 to an 11.0 MMT average in 2008/09-2010/11. Production was 22.8 MMT in 2011/12 and 20.9 MMT in 2012/13. Exports increased from 5.0 MMT annually in 2008/09-2010/11 to 15.2 MMT in 2011/12 and a projected 13.0 MMT in 2012/13. Argentina also is projected to have record exports of 19.5 MMT after being in a range of 10.0-16.0 MMT of exports over the last 10 years.

Global corn imports are expected to be 97.5 MMT in the 2012/13 year, down 6.0 MMT for 103.5 MMT in 2011/12, but up from 91.9 MMT in 2010/11 and 93.0 MMT in 2009/10. China, Egypt and Mexico are each expected to be down 2.7 MMT in 2012/13 from 2011/12. Some of these lower corn imports may be replaced by feed wheat or other coarse grains. EU-27 imports are expected to be up by 3.8 MMT this year from 6.2 MMT imported last year.

This period of high corn prices has attracted 20-30 MMT of additional production to the annual world corn supply, with most of that in the southern hemisphere where they can respond to price changes before the U.S. can respond. Ukraine is relatively new to the export market and has shown that it is willing to use low prices to move corn and other grains out of the country when supplies are large.

Most U.S. analysts are assuming that corn acres planted in the U.S. in 2013 will be large enough that 90 million acres will be harvested for grain. With a conservative yield assumption of 156 bushels per acre, corn production would exceed 14.0 billion bushels. U.S. exports could easily return to the 35-40 MMT ton range or higher. A higher yield would make the U.S. even more competitive in export markets.

The world export market for corn, excluding the EU and the countries of the former Soviet Union, has been growing about 2.0 MMT per year since 1990. Unless temporary demand enters the market due to weather problems in China or the European Union, the market cannot absorb trend yield corn crops on the existing corn acres of the major corn exporters. The low corn prices in the U.S. from 1998-2001 and again in 2004-05 have shown that the corn market is too inelastic in the short run to clear markets at reasonable prices. Supplies will build until production and consumption adjustments are made to balance demand and supply.

Much must happen in coming months before markets take on larger supply worries. The summer season corn crops in Argentina and Brazil must endure the normal summer heat and dry weather. The summer rains in Brazil must linger long enough to provide moisture for the winter crop corn to achieve above average yields. Late winter and early spring rains in the U.S. and Ukraine are needed to recharge subsoil moisture to help carry the crop through the summer.

The Secretary of Agriculture, who said the cure for high prices is high prices, also said the cure for low prices is low prices. The three years of high prices caused, in part, by below trend yields in the U.S. have attracted resources that cannot be sustained by the level of demand as we now understand it. New uses will have to be discovered or resources will need to find alternative uses. Just as free trade and open markets have helped to solve the high price problem, they will also help the production adjustments needed to solve the coming period of low prices.

Ross Korves is an Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org). Follow us: @TruthAboutTrade on Twitter | Truth About Trade & Technology on Facebook.