Market Matters Blog

High corn prices have forced even our most loyal customers into the arms of our biggest competitors, and it's generating a sometimes uneasy conversation about the U.S.'s market share and how to fully recover it once domestic stocks rebound.

Historically, Japan has purchased 90% of its corn needs from the U.S., about 15 million metric tons annually. Last December, the U.S. only supplied 33% of Japan's needs, while more than 50% of Japan's corn imports of corn came from Brazil, a first. Tommy Hamamoto, the U.S. Grains Council's director in Japan, said at their recent meeting that U.S. market share in Japan has fallen back to 70%.

"I'm sure it will come back when the U.S. has a good crop," he said, noting that the Japanese appreciate the transparency of the U.S. corn market and the crop quality. Other Asian directors echoed his comments, believing the U.S can regain the ground it lost this year due to its short supplies and resulting high prices.

Established Asian markets like Japan, Taiwan and South Korea aren't the only ones turning to other sources of grain. Mexico bought non-NAFTA grain for the first time this year, shipping in corn from South Africa and wheat and sorghum from Argentina.

USDA Chief Economist Joe Glauber said its likely Brazil will overtake the U.S. as the world's largest corn exporter in fiscal year 2013, even though he expects the U.S. will regain the lead the following year.

The U.S. Grains Council has focused on building demand from U.S. grains, and in their Asia board meeting, many of the attendees were grateful Brazil and other countries were able to meet Japan and other buyers' needs. Global demand destruction would be more difficult to overcome than recovering market share; and yet they were concerned about the damage these high prices could have on the U.S.'s trade relationships in long run.

How damaging is one year of supply shortages and high prices, and will price alone be enough to fix it?

On one side of the coin, once our regular customers start shopping around and developing new relationships, they'll be reluctant to return to a predominantly one-source supply chain, the argument goes. Regaining market share will require rebuilding trust in the U.S. as a reliable trading partner, as well as a return to more reasonable prices (for buyers).

"We need to double down on our relationships to get them back as customers. There are still more factors than price in purchasing decisions," one board member said. "If you lose a customer, it takes an enormous amount of time and effort to get them back."

On the other side is the argument that the U.S. is still the most efficient supplier in the world. Once the global balance sheet relaxes, the U.S. will return to origin-of-choice status.

Multinational grain companies make purchasing decisions based on price, and they're playing a growing role in the global markets, a USGC staffer told his board. This year, Brazil corn's price tag is lower than the U.S. and it has an ocean freight advantage, making it a no-brainer for a buyer looking at the bottom line. Those multinationals will continue to look for the lowest cost-of-origin corn.

Brazilian transportation costs are nearly double that of the U.S., which usually provides U.S. corn's competitive edge in the marketplace. That's not expected to change in the near term, but it's worth noting that Brazil's investing heavily in its infrastructure while funding for crucial repairs to aging U.S. infrastructure wallows in Congress. If just a few of Brazil's infrastructure projects are completed, it could potentially reduce freight costs by $40 to $60 per metric ton, a sizeable advantage, according to a recent Soybean Transportation Coalition study.

But that, again, is years down the road. Can the U.S. bounce back from its current cut to market share? U.S. farmers will overproduce someday, and that will bring prices down to an attractive level to buyers. And if you believe USDA's estimate of a 14.53 billion bushel corn crop with an average 163.6 bushel per acre yield, next year could do that, especially if the Ukraine and other emerging corn growing areas have strong yields, too.

Are lower prices all the U.S. needs to regain its export market share, or do we need to double down on our relationships? My gut says the answer is that it will take the right combination of the two. What do you think?

(ES/CZ)

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