November 5, 2007

 

US 2007/08 corn exports to set new record

 

 

The strong pace of US corn export sales has some analysts forecasting an all-time export record, eclipsing the old mark of 2.400 billion bushels set a generation ago.

 

Lower world feed grain production has led to increased demand for US corn, analysts said. As a result, weekly US corn export sales commitments through Oct. 25 are 1.095 billion bushels compared to 779 million bushels last year at this time. The US Department of Agriculture is estimating total 2007/08 US exports at 2.350 billion bushels.

 

"Weekly export sales commitments are the second highest ever, and I expect global grain feed stocks to continue to decline with US corn exports setting a new record," said Bill Tierney, executive vice president at John Stewart & Associates in San Antonio.

 

With 44 weeks remaining in the 2007/08 marketing year, weekly corn export sales need to average 30 million bushels per week to break the record.

 

There is normally an increase in export sales during this time of the year, available supplies are ample due to harvest and prices are usually low, said Shawn McCambridge, senior grain analyst at Prudential Financial in Chicago. Sales are strong, but to traditional customers such as Japan, South Korea and Mexico, McCambridge said.

 

Some of the increased demand might be traditional customers buying during the seasonal harvest price decline with the idea that corn prices might be higher later in the marketing year. A key to whether corn exports increase is whether those traditional buyers purchase more corn than normal and if any non-traditional buyers turn to the US for feed supplies, said McCambridge.

 

Current Chicago Board of Trade (CBOT) corn prices are trading around US$3.68 for the December contract, but deferred markets are at higher prices.

 

The door is open to greater corn exports, in part because of the continued problems in global wheat production. Wheat is used primarily for food, but can also be used as a feed grain. As some countries divert more wheat into food channels, corn is used more for livestock.

 

A decline in wheat production due to severe drought in Australia for the past two years and lower European Union wheat supplies due to rain during the harvest this year have pushed US wheat futures prices to recent all-time highs.

 

The expansion in the world's economy also is contributing to the strength in corn demand. Living conditions and wages have improved in Asian countries in particular, allowing people to improve their diets.

 

As the standard of living increases, particularly in China and India, the quantity and quality of the food consumed increases. Meat demand in particular expands, adding to a greater market for corn, McCambridge said.

 

The weak US dollar also is contributing to the upswing in foreign demand. This makes US corn more attractive to foreign buyers as the lower value of the dollar versus foreign currencies allows countries to purchase more corn compared to when the dollar's value is higher. However, high ocean freight rates, also priced in dollars, have doubled from some US ports to overseas destinations, mitigating some of the benefits of a weaker currency.

 

Another factor that could keep US corn exports strong this winter is current poor weather in Brazil, another exporter of corn.

 

Recent dry weather in Brazil has raised concerns about the country's production of its "safrinha" or second corn crop, which is planted after soys and makes up the majority of the country's corn exports, said Tierney.

 

In October, the USDA estimated Brazil's 2007/08 corn exports at 8 million tonnes.

 

The recent problems planting Brazil's soy crop make it likely that the country's second corn crop will be smaller than normal, with fewer acres planted and possibly smaller yields as the crop may mature during the dry season, said Tierney.

 

Although both Tierney and McCambridge expect total US export demand to break the record set in the 1979-80 marketing year, neither thinks that it will be by a significant amount.

 

"I'm reasonably confident that US corn exports will be greater than the old record, closer to 2.500 billion bushels," Tierney said. Looking at the world's feed grain situation, there are more items to suggest further tightening of global feed grain stocks which should add to demand, Tierney said.

 

Tuesday, Australia reduced its barley production estimate, to 5.0 million metric tonnes from its previous estimate of 5.9 million. A large amount of barley is normally used as animal feed.

 

Although McCambridge expects the USDA will eventually increase its US corn export demand estimate, it will be a modest one. "If the US has record wheat production, some of that wheat will move into feed markets and will reduce demand for US corn," said McCambridge. But given the current demand scenario the USDA could increase its export demand forecast above the record 2.400 billion bushels by 25 million to 50 million bushels to around 2.450 billion bushels, he said.