Swings in Corn Supply, Demand Impact Global Markets
The past several years have been a wild ride in the corn market, from the record high prices in 2010, 2011 and 2012 to the record high production of 2013 and 2014. It’s been a tale of swings, in both supply and demand. One of the demand areas that has swung the most is export demand. As the U.S. is the world’s major producer of corn, often the rest of the world looks to the U.S. to source its feed grains. But several factors have come together to limit potential corn exports. Global supplies have grown, more players have entered the export markets, and global demand is precarious, as much of the global economy is still moving more slowly than expected.
As Table 1 outlines, global corn production has increased dramatically over the past few years. Those record high prices from 2010 to 2012 created a strong incentive for producers around the world to grow more corn and the producers responded. World corn supplies are up nearly 20 percent over the past five years. And the expansion has truly been global with the U.S., Brazil, China, EU, Russia, South Africa and Ukraine all experiencing double-digit growth. In fact, the corn expansion in the Black Sea region has been tremendous, with corn production more than doubling in the region. World corn production has reached record levels the past two years. Thus, global corn markets are dealing with a lot more corn than usual.
And, much of this added production has been targeted for export markets. Argentina and Brazil ramped up corn exports to fill in the hole left in the global corn market by the drought in the U.S. in 2012. Russia is projected to export roughly 25 percent of its corn crop. Ukraine will likely export over half of its corn production. So the global marketplace has a number of new important shops open for business. At the same time, many of the major corn importers have raised more of their own corn as well, limiting the amount of corn needed to be brought in country.
Factors Limiting Growth
As Figure 1 on the next page shows, U.S. corn exports this year are running slightly behind last year’s pace. The U.S. corn market saw a drastic pullback in export demand with the 2012 crop, given the drought and the $7-per-bushel price that accompanied it. Since then, the rebound in corn exports has been significant, but the market is still well below record levels. Global corn consumers have come back to U.S. corn, but the availability of corn from other markets dampened the response. The record year for corn exports was 2007-’08, when roughly 2.4 billion bushels crossed the U.S. border. Current estimates for the 2014-’15 crop year put exports in the 1.75 billion bushel range. So there is a lot of potential room for growth in export demand. But record global supplies and increased competition are limiting that growth.
Another factor working against U.S. corn exports is the strength of the dollar. As corn and energy prices have weakened over the summer and fall, the dollar has been strengthening. Since July, the U.S. dollar index has increased by approximately 10 percent. That strength is coming from concerns about the growth of global economies. As economies around the world slow, investors look for a safe haven, and the dollar is still seen as that. As the dollar strengthens, it makes U.S. goods, like corn and ethanol, look more expensive relative to the same products from other countries. However, the impact of the dollar is not uniform across the globe. Some countries do not feel the swings in the value of the dollar as they fix or peg the currency exchange rate. These countries are mainly smaller economies from Asia and Africa, but China was the last major economy to peg its exchange rate. Most countries and economies, however, do feel the value swings in the dollar and, therefore, react to the strengthening of the dollar via lower export demand.
A third factor working against U.S. corn exports over the past year has been the trade dispute between China and the U.S. over genetically modified corn. While that dispute is coming to an end, it was a significant disruption to the corn export market. In the fall and early winter of 2013, China was the third-largest export market for U.S. corn, accounting for roughly 10 percent of exports at the time. The dispute reduced China’s corn purchase from the U.S. to near zero, as Figure 2 shows. The temporary loss of the Chinese market limited the potential for export growth.
Factors Promoting Growth
There have been other factors, however, that are promoting growth in U.S. corn exports. The major one at the moment is the expansion of trade with partners under trade agreements. Trade agreements with Asian and Central and South American countries continue to pay dividends for corn exports. Just as Mexico grew to be a major corn trade partner after the signing of the North American Free Trade Agreement, Colombia, Peru and South Korea are growing corn markets for the U.S. after the signing of trade agreements with those countries. And, the general reduction in U.S. corn prices over the past two years has boosted export prospects.
In the short term, the corn outlook is for a slight reduction in corn exports for the 2014 marketing year (Sept. 1, 2014, to Aug. 31, 2015), with the large global supplies and the strength of the dollar being the overriding factors. But longer term, U.S. corn exports are projected to rise during the next decade. In mid-December, USDA released a preliminary view of its long-term agricultural projections. Those projections showed corn exports growing from 1.75 billion bushels for the 2014 marketing year to 2.5 billion bushels in 2024. Much of this projected growth is based on improving global economic conditions, larger populations and slowly rising corn prices and production. On a percentage basis, we currently export about 12 percent of the total U.S. corn crop. By 2024, USDA projects we’ll export roughly 17 percent of the crop. The U.S. is still the dominant player in the global corn market. We produce approximately one-third of the world’s corn. And as the USDA projections indicate, export markets will remain a crucial outlet for U.S. corn for years to come.
Author: Chad E. Hart
Associate Professor of
Iowa State University