Corn production rising in South America

International competition, tight supply hard on U.S. grain exports

When the U.S. Department of Agriculture released its World Agricultural Supply and Demand report on January 11, it showed that South American corn producers continue to grab a bigger percentage of the market share. It also indicates bad news for U.S. corn exports. 

 “We took South America up in terms of corn production approximately 2.6 million tons this month, if you include a 1.1 million ton increase for Paraguay,” USDA World Outlook Board Chair Gerry Bange said in an agency broadcast.

According to the report, global coarse grain supplies for 2012–2013 are projected 2.9 million tons higher, reflecting the increased corn production for South America. In addition to production in Paraguay growing by 1.1 million tons, Brazilian corn production is raised 1 million tons and Argentina’s production is raised 0.5 million tons.

Conversely, a 0.5 million ton decrease was reported for Russia, as well as a 0.1 million ton decrease for both the Philippines and Serbia.

Despite the increase in South American production, Bange points out that world corn supplies are still tightening.

“If you look at the situation in the U.S. alone, where the December 1 [2012] stocks were reported at right about 8 billion bushels, that’s probably a little less — maybe 200 million bushels less or so — than the market had expected,” said Bange. “So right off the top, you can see that the situation in the U.S. is somewhat tighter.”

That tightening of supply has been hard on U.S. exports. “We’re now looking at exports of 950 million bushels for 2012–2013, which is down nearly 40 percent from 2011–2012, so it’s a sharp decrease,” said Bange.

Kim Anderson, a cooperative extension crop marketing specialist for Oklahoma State University, said with the increased production of South American corn crops, an increased demand for South American corn exports comes as no surprise.

“Competition will always have an impact on prices,” said Anderson. “Brazil and Argentina are  increasing corn production and becoming more competitive in that export market. That will have an impact on U.S prices, and demand for the U.S. product.

“The higher price made it profitable for Brazilian and Argentine producers to raise the corn and to put it on the market. That’s what you should expect to see in a free-market system.”

The USDA notes there is an increase in residual feed demand, and a decrease in exports, but despite that, Bange said corn prices remain relatively unchanged from the previous month, being reported around $7.40 per bushel at the time of reporting.

With the feed grains markets unknown as the corn belt continues to be in a state of drought, Anderson indicated some corn producers may consider a shift to soybeans — or vice versa.

“I don’t think that beans are under as much risk for the 2013 crop as corn is from the drought areas, but I think most everybody’s in a wait-and see mode,” said Anderson. “If I had to guess, prices are going to go sideways to slightly higher.”