Market Matters Blog

Anyone who's watched weekly export sales and shipment numbers knows that it's going to be a slow year for corn exports. Corn inspections for the current marketing year to date are 44% behind where they were a year ago. Farmers hauled in a drought-shortened crop this year, estimated to be about 10.7 billion bushels, so the reduction is really no surprise. The crop is just too small to go around.

But what about the longer term picture? U.S. dominance of the corn export market is likely to keep shrinking, Purdue University agricultural economist Phillip Abbott argues.

"The U.S. has historically been a very important part of the international corn market," Abbott said in a Purdue University press release. "Prior to the 2007-08 food crisis and spike in commodity prices, the U.S. exported well over half the amount of corn that entered international markets. Since then, the high prices have caused the rest of the world to expand their production and become more self-sufficient.

"Even if we get bigger corn crops in the future, it's likely that the demand in foreign markets will not soon recover to the level that it once reached."

Ethanol and increased corn acreage overseas are the two primary factors that will curtail U.S. corn export market dominance. Abbott notes that the U.S. exported 2.4 billion bushels of corn in the 2007-8 marketing year compared to the 1.1 bb expected to be exported this year, according to USDA statistics.

Take into account the Renewable Fuel Standards, which mandate 5.5 billion bushels of corn go into ethanol production. "Roughly 40 percent of the corn that's produced in this country is used in ethanol, although some of it is later used as distillers grain for livestock feed," Abbott said. "That's up from about 10 to 12 percent five years ago. The amount of corn that makes up the increase is more than we export."

Ethanol helped generate the demand market corn's enjoyed over the past five years. It's the demand market that's made corn such a profitable crop, and farmers in other corners of the world want to take advantage of higher prices, so they're planting more corn (and more crops in general).

Since the late 1990s, South America's crop acreage has increased 53% while former Soviet Union crop acres are up 24%. Argentina and Ukraine have emerged as strong alternative sources for corn in recent years. Each country has its obstacles -- consistent production in Ukraine and government policy in Argentina -- but will likely make progress, expanding its market share in the process.

Meanwhile, the U.S. can't keep pace with these acreage increases. Most of the workable farmland in the U.S. is already in production and while corn has take acres from other crops, it's still not enough to supply all of our domestic needs while maintaining or expanding our corn exports.

"We've tried to accommodate the export markets by working to increase production, but we haven't managed to do that," Abbott said. "We've had to keep feed use flat and watch exports shrink.

"All the hard work we did to build export markets has been hurt by the high commodity prices of the last four or five years. As a result, the world has figured out ways to meet their own needs. And with a couple of exceptions like China buying more soybeans, we're probably going to see weaker export demand in the future."