Corn has been dominating the agricultural news lately, riding the roller-coaster of investor responses to the latest USDA crop and supply reports. Here are a few key points:
- Corn closed at $5.56 per bushel today.
- Thirty-six percent of U.S. corn is expected to go towards ethanol production this year.
- Although the U.S. is expected to have its third largest corn production year, domestic supplies may reach a 14 year low, falling below the one billion bushel level.
- If corn prices stay high, hog and cattle numbers will likely be further reduced; and U.S. cattle numbers are already at a fifty year low due to poor demand in this current economic climate.
- If corn prices stay high, ethanol plants may be forced to close due to unprofitability, relaxing corn supplies down the road.
- So far, supermarkets are not raising food prices, because the consumer cannot support them. Last quarter, prices went down again.
- This current supply and price condition may also hinder the renewal of the controversial VEETC ethanol tax credit of $.45 per gallon, set to expire the end of this year.
- Conclusion: As price goes up, expect demand to go down.
Next, I am providing corn import and export data of related interest from a former USDA report.
The United States is the world's largest producer and exporter of corn. Corn grain exports represent a significant source of demand for U.S. producers and make the largest net contribution to the U.S. agricultural trade balance of all the agricultural commodities, indicating the importance of corn exports to the U.S. economy.
On average, corn grain (excluding popcorn or sweet corn) accounted for approximately 11 percent of all U.S. agricultural exports by value during the 1990s. In 2008, due to record exports of corn and other feed grains, that share grew to over 12 percent of the U.S agricultural export value. The U.S. share of world corn exports averaged 60 percent during 2003/04-2007/08 (the international trade year is October-September.
As biofuel production develops and expands, it will continue to put pressure on U.S. corn and other feed grain production, exports, livestock feeding, and other domestic uses.
While the United States dominates world corn trade, exports account for only a relatively small portion of demand for U.S. corn—about 15 percent. This means that corn prices are largely determined by supply-and-demand relationships in the U.S. market, and the rest of the world must adjust to prevailing U.S. prices. This makes world corn trade and prices dependent on weather in the U.S. Corn Belt.
However, Argentina, the second-largest corn exporter in most years, is in the Southern Hemisphere. Farmers there plant their corn after the size of the U.S. crop is known, providing a quick, market-oriented supply response to short U.S. crops. Several countries—including Brazil, Ukraine, Romania, and South Africa—have had significant corn exports when crops were large or international prices attractive.
Japan is the world's largest corn importer by far. While producing almost no coarse grains, Japan is a very large meat producer, so the country is a steady buyer of corn, with attention to quality. In recent years, Japanese imports of corn for livestock feed have stagnated, while imports for industrial use and starch manufacturing have increased.
South Korea is the second-largest importer of corn in the world. South Korea is a price-conscious buyer, willing to switch to feed wheat or other coarse grains, and ready to buy corn from the cheapest source. Mexico is a growing importer. While a large corn producer, Mexico processes much of its production of white corn into human food products, but has turned to imported yellow corn and sorghum for livestock feed to support increased meat production.
- Corn is the most widely produced feed grain in the United States, accounting for more than 90 percent of total value and production of feed grains.
- Around 80 million acres of land are planted to corn, with the majority of the crop grown in the Heartland region.
- Most of the crop is used as the main energy ingredient in livestock feed.
- Corn is also processed into a multitude of food and industrial products including starch, sweeteners, corn oil, beverage and industrial alcohol, and fuel ethanol.
- The United States is a major player in the world corn trade market, with approximately 20 percent of the corn crop exported to other countries.
source: Feb. 09 USDA report
[I took the photo in central Nebraska in late September 2010.]