KANSAS CITY — Despite the fact the U.S. Department of Agriculture predicted in January that domestic corn export sales were “expected to surge in coming months,” doubters among market observers are easy to find.
“Don’t hold your breath,” said Christopher Hurt, agricultural economist at Purdue University in West Lafayette, Ind. “That’s been the line since July. People have been saying that foreign buyers will come to the table but they haven’t” in the volume that would lift U.S. corn exports from current historically low levels.
“We think corn exports will recover, but by how much?” said Marty Foreman, senior economist at Doane Advisory Services in St. Louis. He said the longer-term picture for U.S. corn exports remains anemic. “We’ve already fallen way behind,” he said.
The belief that corn exports, currently at a 40-year low, will rebound significantly is based on the idea that, in the relatively brief gap of about two months of February and March when South American old-crop supplies may be depleted but before the new Brazil and Argentina crops are fully harvested, the United States will be the only major exporter with corn left to sell and demand will flock to buy U.S. supplies.
But experts say there are flaws in the “last man standing” argument. Some potential buyers such as the European Union don’t like the fact U.S. corn is bioengineered and competitors such as Brazil market their corn as being non-bioengineered. There is also aflatoxin tainting some U.S. corn, which chips away at the appeal it has for abstemious buyers such as Japan.
Sources of cheaper feed ingredients such as lower-quality wheat remain available from countries such as Ukraine and Russia. U.S. exclusivity at any time of year is a case of wishful thinking, market observers said.
The hoped-for window between availability of old-crop South American corn and the fresh harvest when U.S. corn would be expected to win lots of business “is closing on us without our realizing it,” said Roy Huckabay, executive vice-president at The Linn Group in Chicago.
An unexpected factor, he said, was the delay in the South American soybean harvest. That delay has meant unused port capacity and sellers in the region have been offering corn for February and March delivery at about a 30c discount “just when we thought the U.S. was going to pick up business,” Mr. Huckabay said.
The situation points to the fundamental reason behind the weak domestic corn export picture.
“What has hurt the U.S. export market is the large supply of competing shippers,” Mr. Foreman said. “We need to ship an average of 21 million bus a week” to keep up with the U.S.D.A.’s current estimate of 950 million bus in 2012-13. “If we get to 20@25 million a week, that’s a big increase from exports in the single digits. But, in the longer-term history, 35@45 million in shipments a week was pretty routine.”
Mr. Hurt said recent buying behavior by South Korea emphasized the fact corn importers have options in how they buy supplies, which are used in animal feed for both developing and advanced countries.
“South Korea was in the market before Christmas,” he said. “People thought they would buy U.S. corn, but they bought new-crop Argentinian corn for April delivery.”
High U.S. corn prices, though they may help ration supplies domestically, have the paradoxical effect of encouraging other countries to double-down on corn production, expanding into every possible acre, Mr. Hurt noted, building the competition from other countries.
In turn, high U.S. corn prices encourage livestock producers to seek feed alternatives and to cull herds.
“Livestock producers scour the world for anything to feed that is affordable,” he said. If that fails, culling herds is inevitable and “it takes time to build them back.”
This creates demand destruction that may affect world demand for corn for a protracted period of time.
Mr. Foreman said the corn market is watching U.S. exports, as well as the weather and ethanol production, which has lagged recently, and futures prices are more or less in a holding pattern.
Persistence of drought in the U.S. Corn Belt will have an impact on corn futures and help determine how competitive domestic corn is on the world market. Suppliers abroad may be quite aggressive in discounting their corn compared to U.S. corn, a situation that Mr. Huckabay characterized as “really ornery.”
“Weather is a big unknown,” Mr. Foreman said. “It is unlikely we are going to erase the red and brown areas of the Drought Monitor map by the first of May, but we could have a crop that is close to normal trend line with bushels per acre in the 160s, if we have timely enough rain in the spring and summer, even if technically we are still in drought. The new crop faces risks because of dryness because we don’t have a lot of reserves.”
That outlook is in some contrast to ideas that both the Brazilian and Argentinian corn crops, though much smaller than the typical U.S. crop, are in basically good condition, despite some weather gyrations between excessive moisture and dryness, in Argentina.
In the most recent World Agricultural Supply and Demand Estimates from the U.S.D.A., Argentina’s production in 2013 was projected at 28 million tonnes while Brazil’s was projected at 71 million tonnes, compared to U.S. production of about 274 million tonnes. The United States was expected to export about 24 million tonnes, or 9%, of its production, with the overwhelming majority of the crop used for domestic feed and ethanol purposes. Argentina was forecast to export about 70% of its crop, the WASDE said, and Brazil was projected to export about 25% of its 2012-13 production.
Corn with characteristics attractive to importers and aggressively marketed — as well as other options for feed such as cheap wheat — paints a picture of continued steep competition for U.S. corn.
“The market foresees increasing exports but whether there is a surge remains to be seen,” Mr. Foreman said.