June 6, 2011


US grain exports expected to drop as foreign output rises



US grain exports are expected to fall in the year ahead as farmers around the world ramp up production to cash in on a global boom for crops.


Prices for corn and wheat have surged since last summer, creating an incentive for farmers in South America and the former Soviet Union to ramp up plantings with an eye on exports. That means more competition for the US, the world's top grain exporter, which has seen its inventories depleted over the last year due to a surge in foreign demand.


"When you get into high prices and ample stocks outside the US, US exports tend to drop sharply," said a CBOT analyst.


Foreign buyers are looking to other nations for supplies or producing more of their own grain. Yet a slowdown in export sales abroad is not likely to undercut prices as US inventories are expected to remain low, and domestic demand from food processors, ethanol makers, and livestock producers remains strong.


Analysts warn it is still early. Factors, from Russia putting new tariffs in place to China's harvest falling short of expectations, could cause US export sales to pick up. Weakness in the US dollar also could boost interest from foreign buyers.


Citigroup projects that US wheat exports will drop 23.5% to 975 million bushels in the current crop year that began this month. Corn exports are projected to fall nearly 8% to 1.75 billion bushels in the coming crop year that starts in September. Those projections are more dramatic than the outlook of federal forecasters. The USDA predicts corn exports will fall 5% to a nine-year low, while wheat exports will tumble 21%, yet still remain above the levels of the 2009-10 crop year.


Pulling export buyers away from the US is the return of Russia, once the world's third-largest grain exporter. Russia last week said it would resume exports on July 1 after implementing a ban last August when a historic drought devastated its crops.


Russia could export as much as 13 million tonnes of wheat in the current marketing year, up from four million tonnes last year, analysts said. That would account for 10% of global wheat exports, which the USDA projects at 127 million tonnes.


Ukraine is also easing restrictions on grain exports amid expectations for a rebound in production after last summer's drought. The countries are expected to take business from the US to countries in North Africa and Asia. Egypt, the world's top wheat importer, has already expressed interest in rekindling its relationship with Russia.


Federal forecasters in a recent report said that "export prospects are sharply diminished," citing increased competition as Black Sea production and exports rebound.


As for corn, a large crop in Argentina, the world's second largest exporter of the grain, is expected to eat into US business. The USDA projects Argentina's corn output will jump 18% from last year to a record 26 million tonnes and its exports will rise 24% to 18 million tonnes.


Analysts, however, caution against forecasting too big of a cut in US sales abroad. Morgan Stanley expressed doubts about the USDA's outlook for Argentina because the government projected significant increases in both corn and soy plantings there, which can be difficult to achieve with limited farmland.


Russia, meanwhile, may end up restricting exports again if domestic prices climb too high ahead of next year's presidential election. China's needs can be difficult to predict because of a lack of available data on crop supplies and expected demand.

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