FBA Issue 34: September / October 2010
Storm clouds over the corn market
If there is one feed ingredient whose supply is not only scarce but woefully unbalanced, it is corn. Out of the world's approximately 190 countries, all but about 10 of them import corn. Despite this heavy worldwide dependence on imports, only 90 million tonnes or 11% of the roughly 830 million tonnes of corn grown annually is traded internationally.
Moreover, nearly 90% of feed corn exports that 180 countries depend on come from just five nations: the United States, Argentina, Brazil, Ukraine and South Africa. Yet, strangely enough, there is no correlation between a country's corn output and its export status. Brazil, Argentina, Ukraine and South Africa provide roughly 31% of the world's exports but only grow 11.7% of its corn. Small producers are often huge corn exporters. Many of the largest corn producers are net importers or about lose their self-sufficiency in this feed grain.
Large producers are becoming big importers, tiny producers are large exporters
For example, China is the world's second largest corn grower and accounts for about 20% of the global harvest. China actually grows more corn than Brazil, Argentina, Ukraine, India, South Africa and Canada combined. Yet, it has virtually no exports. In ten years time, China will still be the world's second largest corn grower but that may not stop it from overtaking Japan to become world's top importer.
With a population roughly equal to that of China but far less land, India, the world's sixth largest producer, is also poised to become a net importer over the next decade.
Similarly, Mexico is ranked the world's fourth largest corn grower –and also its second largest importer. Like China, it too, once was a major corn exporter. Hence, in a world where almost every country is a net corn importer, only three of the top six producers are exporters.
Furthermore, except for the United States, all leading corn exporters are actually developing countries with relatively small crops but even smaller domestic markets. And all of them have rapidly growing domestic meat consumption.
Will prosperity eat up corn exports?
Much like China, Mexico and India, as these major corn exporting economies grow, their rising domestic meat consumption will eat up a lot of their exports. It is because of rapid economic growth that Brazil grows 250% more corn than Argentina but exports only half as much.
Indeed, with the exception of the United States, it seems to be almost impossible for a country to become wealthier and remain self-sufficient in corn. Only America combines being wealthy with being a large corn producer and a leading corn exporter. Even here, by accounting for up 40% of the global crop and 60% of exports, America's market dominance and industrial corn use adds additional instability to an already imbalanced market.
Whereas the US is exceptional, Argentina is typical of major exporters. With 2.6% of the global corn harvest, it supplies 15.5% of exports, making it the second global supplier after the United States, which grows 14 times more corn. Similarly, Ukraine, with 1.6% of the world harvest provides 6.7% of world corn exports.
Ukraine and South Africa have 50% more people than Canada and grow almost as much corn. Yet, Ukraine and South Africa supply nearly a tenth of corn exports whereas Canada is net importer. Should either Ukraine or South Africa ever achieve one third of Canada's per capita GDP, there tenth of world corn exports would vanish overnight.
Similarly Brazil, the world's third largest producer, grows more corn than the next three largest exporters countries combined. Yet, it exports only about a tenth of its crop. Its export volume is actually comparable to that of countries that grow 70% to 85% less corn than it does. Along with rapidly growing personal incomes and population growth, Brazil's corn supply is also pressured by high demand for its meat exports.
All these major exporters are undergoing rapid economic growth, rapid population growth and must contend with fast rising domestic meat consumption. The possible future of such corn exporters can already be seen in the fate of other developing countries. Among the top six corn producers, Mexico, China and India were once all large exporters of note. Economic development, population growth and rising per capita meat demand transformed Mexico into the world's second largest corn importer. Thia same rapid growth is turning China and India into mass importers and greatly reduces the volume of Brazilian corn available for export.
The gradual impact of one leading corn producer after another falling into net importer status can be seen in the world corn stocks-to-use ratio. Despite having many ups and downs, it has fallen steadily over the last six decades.
USDA data indicates that since the 1987-88 year, the average corn stocks-to-use ratio has fallen by an average of 1% per year. In a study released in May by Kansas State University ("World Corn Market SupplyDemand Trends", May 27, 2010), agricultural economist Dr. Daniel O'Brien, states that: "anticipated growth in the global usage of corn is likely to extend the long term trend towards lower world corn stocks (if not accelerate it)."
America is not the answer
Nor does the United States provide a way out of the conundrum presented by the fact that all other corn exporters are developing countries. It has very high corn yields but the fact its productivity is the highest means that it has the least potential to increase yields. Moreover, its supply of arable land is close to being fully developed.
Most importantly however, the US, through its dependence on ethanol production, has removed a great deal of corn from the world's feed equation. According to the USDA, from 2000 to 2010, feed corn demand increased by approximately 18%. On the other hand, corn used for seeding, human food, deep processing or biofuels jumped 4.5 times faster, or by 83%. It is important to note that the vast bulk of this jump in non-feed corn demand is exclusively due to rising corn-based ethanol production, which is mostly centered in the United States.
Of the 85 billion litres of ethanol produced this year, 46 billion litres or 54% will be produced in the United States. To do this, the US will use up approximately 95 million tonnes of corn, which exceeds the total amount of corn globally available for export.
With the Obama administration maintaining and even expanding the pro-ethanol policies of the previous president, we can expect the proportion of US corn harvest diverted away from export and into ethanol to either remain constant or rise.
Kansas State University's Dr. O'Brien, states that, "Expansion of ethanol production beyond current levels holds could markedly affect world export markets, given that the United States is the predominant supplier of the world's corn exports."
Nor is it only the fault of the United States. Economic growth in developing countries has boosted demand for corn starch, corn syrup and industrial uses. These demand sources have grown more slowly than ethanol production but faster than feed demand. Worldwide, the amount of corn used for deep processing, biofuels and human food now amounts to 332 million tonnes –which is roughly equal to the entire US corn harvest.
Consequently, from its narrow export base, corn supplies have to do much more than satisfy feed demand. Supplies are simultaneously under siege from feed demand growth in developing country exporters, ethanol production in America and deep processing demand in Asia and Latin America.
O'Brien concludes that, "It is possible to conceive of a scenario in the future where corn prices increase markedly in an effort to ration limited corn supplies to meet continued growth in demand for corn use both domestically and abroad."
The above are excerpts, full versions are only available in FEED Business Asia. For subscriptions enquiries, e-mail membership@efeedlink.com
