A look at U.S. corn export prospects

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This year U.S. corn exports are plunging to their lowest level in decades, down near 700 million bushels. Essentially all forecasts show a big rebound in exports in 2013/14, with the consensus near 1.3 billion bushels. That seems like a reasonable assumption. After all U.S. corn exports averaged nearly 1.8 billion bushels in the three years prior to this year. The reasoning goes that the drought in 2012 drove corn prices up so high that countries reduced imports and that situation will reverse if prices are lower for the 2013/14 season.

But there are some issues that at least need a closer look to evaluate the potential for U.S. corn exports next year and the years beyond. One is that despite the high corn prices in 2012/13, world corn trade really didn’t decline all that much. USDA puts world corn trade in 2012/13 at 96.5 million tonnes, down just 4.5 million from the previous year. That translates into a decline of just 177 million bushels in world trade, while U.S. exports dropped by 840 million bushels. That does not indicate that buyers were dissuaded by the high corn prices.

But the world trade data are a little distorted by the fact that U.S. corn imports surged by about 130 million bushels this season and without that increase, foreign trade would have fallen by about 300 million bushels. That still pales in comparison to the 840 million bushel drop in U.S. exports. So let’s take a look at what countries did significantly reduce imports year-over-year.

The biggest year-to-year decline in corn imports was in Mexico. Corn imports by Mexico in 2011/12 came in at 11.1 million tonnes, but then fell to 6.5 million tonnes this year. But the “normal” import level for Mexico is in between those two extremes. The “normal” level of corn imports by Mexico is 8.5 million tonnes over the 2006/07 through 2010/11 period. If that is normal, the 6.5 million tonnes imported this year represents a decline of about 2 million tonnes.

The situation for Egypt, the country with the second largest year-to-year change, is similar. Imports in 2011/12 came in at 7.2 million tonnes, up from the average of around 6 million tonnes in the two previous years. Egypt’s imports for this season are put at 4 million tonnes, essentially down 2 million from that average level. At least based on USDA’s current forecasts, imports by Mexico and Egypt stay below the recent average levels in 2013/14.

It does appear that imports by China are on the increase. Chinese buying rose from around 1 million tonnes in 2009/10 and 2010/11 to 5.2 million tonnes in 2011/12. Then imports fell by 2.2 million tonnes for 2012/13. A solid rebound in China’s purchases is expected for 2013/14 and imports next season could boost world trade by about 150 million bushels. Strong demand growth may force China to increase corn imports even more beyond the 2013/14 crop year.

But there were only minor changes in 2012/13 corn imports in other countries. From 2011/12 to 2012/13 corn imports by Iran declined by 20 million bushels, imports by Algeria, Japan, Syria and South Africa were down 15 million bushels each. Even if all of these countries’ imports rebound next year, it is hard to see where the 600 million bushel increase in U.S. corn exports will come from.

The U.S. share of the world corn market has dropped significantly this year. For almost a decade up to the 2009/10 crop year, the U.S. share of the world corn market was near 60 percent. This year that share has plunged to just 20 percent and it had already declined to 34 percent in the 2011/12 season. Clearly competitive supplies have increased in recent years.

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Argentina, Brazil and Ukraine are our biggest competitors for world corn trade this year, with Brazil emerging as the world’s largest exporter for 2012/13. A decade ago these three countries exports totaled about 700 million bushels. Even as recently as 5 years ago the total exports for these three countries was less than 1 billion bushels. This year and last year their exports have averaged nearly 2.2 billion bushels and they account for more than half of world corn trade. The U.S. may have to wrest some market share back from these competitors to boost exports back to 1.3 billion bushels or more.

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The USDA forecast show Brazils’ corn crop declining from 77 million tonnes in 2012/13 to 72 million tonnes in 2013/14. Since the crop is not even planted yet, getting an accurate estimate of how much might be produced is impossible. However, the data suggest that USDA may be underestimating the 2013 trend yield in Brazil. Using actual yield data for the last 10 years puts the trend yield in 2013/14 at 4.98 tonnes per hectare. USDA’s forecast actually shows Brazil’s corn yield for next season at 4.65 tonnes per hectare, below actual yields in both 2011/12 and 2012/13. If we use the 10-year trend yield and USDA’s area forecast of 15.5 million hectares, down 300,000 hectares (740,000 acres) from this year’s level, production comes in at 77 million tonnes. That would suggest the availability of an additional 200 million bushels for export.

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The corn yield assumption for Ukraine also looks too low in the USDA forecast. The 10-year trend indicates a 2013 yield of 5.66 tonnes per hectare compared to the USDA forecast of 5.53 tonnes. The difference in production is a relatively small 24 million bushels of corn.

USDA’s forecast shows a 15 percent year-over-year increase in world corn exports but only a 2 percent year-over-year increase in corn imports. The reasons for the discrepancy are unclear – but probably reflect the growing importance of exports from South America where the crop years are out of synch with those in the Northern Hemisphere. In effect, at least a part of the big crops in South America in 2012/13 get exported during the 2013/14 international crop year. This makes crop year trade projections difficult.

If we assume that world corn trade in 2013/14 is near 100 million tonnes, the U.S. share of the world market would need to rebound to about 33 percent for us to export 1.3 billion bushels. The world corn market is dominated by just a few players. Together the top five countries (Brazil, Argentina, the U.S., Ukraine and India) account for 85 percent of all world corn exports. If imports increase by roughly 100 million bushels, then the U.S. needs to take the rest of the 500 million bushels from other exporting countries, essentially Brazil and Argentina. It helps if Brazil’s production declines by 200 million bushels as forecast by USDA, but we will still need to take some of the market share away from the other major exporting countries. That may be very difficult to do.

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