What is in this article?:
- Global corn and the U.S. drought
- U.S. corn exports
- Market prices will increase the supply of corn and substitutes in coming months to meet demand at those higher prices. Consumers and producers are being sent price signals that will restore a supply and demand balance.
U.S. corn exports
Most U.S. corn exports go to a small group of regular customers and some price rationing has already occurred this marketing year. Japan usually buys about 15 million metric tons (MMT) during the marketing year. For the first ten months of the current marketing year, exports have been 10.0 MMT, down 17 percent from a year earlier. Mexico is the second largest customer at about 8 MMT per year, but has already imported 9.2 MMT in the first ten months of 2011/12, up 48 percent from a year earlier, in response to a severe drought last year. Mexico needs a stable supply of corn and has been willing to pay to offset the domestic shortfall.
South Korea is the third largest buyer, but is variable with import ranging from 4-8 MMT in recent years, and imports are down 30 percent in the first ten months of this marketing year. Egypt averages about 3.0 MMT per year, but imports for the first ten months of this year are down 82 percent from last year. Taiwan’s imports are trending lower after averaging 4.0 MMT in 2006/07 and 2007/08. Imports from the U.S. were only 2.7 MMT in 2010/11 and are down 41 percent through June of this marketing year. China is a recent growth market importing 4.1 MMT in the first ten months of this marketing year compared to 0.98 MMT in all of 2010/11, 1.2 MMT in 2009/10 and insignificant amounts before then.
With the U.S. projected to export 33.0 MMT of corn in 2012/13, total global corn trade in 2012/13 is projected at 92.8 MMT, down from 101.3 MMT in 2011/12, but up slightly from 91.5 MMT in 2010/11. Argentina is expected to export 18.5 MMT of corn in 2012/13, Brazil 14.0 MMT and Ukraine 12.5 MMT.
Use of wheat for livestock feed is expected to be down globally in 2012/13 because wheat exports will be lower, mostly due to reduced exports from the Black Sea region countries resulting from dry weather. Higher market prices could encourage additional drawdown of wheat stocks. The WAOB has increased U.S. corn imports from 25 million bushels this year to 75 million bushels next year, but that could be higher depending on livestock and poultry producers in the Southeast U.S.
The current high corn prices and possibly still higher prices, an average U.S. farm price of $8.20 per bushel of corn in 2012/13 is projected by the WAOB, may encourage South American farmers to plant more corn in coming months rather than soybeans. U.S. farmers are expected to plant more winter wheat that could be used for livestock feed in the summer of 2013 and reduce the need for corn in the last quarter of the 2012/13 corn marketing year. Farmers in the southern U.S. are also expected to plant corn early in 2013 with the intension of harvesting early and selling at premium prices in the fourth quarter of the 2012/13.
Some importers of U.S. corn have shown a strong preference for it in previous times of high market prices. They could continue that preference and import more U.S. corn, shifting the needed market adjustment to U.S. domestic users of corn.
The U.S. and global corn markets have not faced a shortfall of U.S. corn production like is occurring this year. When widespread droughts occurred in 1983 and 1988, the U.S. had large supplies of carryover stocks. The drought of 1995 was less severe, exports increased and adjustments were made near the end of the year.
Market forces are already using higher market prices to make millions of adjustments in demand to match the available supply. Those same market prices will increase the supply of corn and substitutes in coming months to meet demand at those higher prices. Consumers and producers are being sent price signals that will restore a supply and demand balance.
Ross Korves is an Economic Policy Analyst with Truth About Trade and Technology.