Back in crop year 2007-08, the U.S. exported twice as much corn as the rest of the world. That was unremarkable considering that the U.S. had long dominated world trade in corn. In a dramatic turnabout, the rest of the world will export twice as much as the U.S. in the 2012-13 crop year. Billions of dollars worth of corn that would have been exported by the U.S. was instead exported by new corn-producing countries such as Brazil and the Ukraine.
How did this revolution in grain trade come about? The U.S. share declined due to poor harvests and a philosophy of full speed ahead on ethanol production regardless of the availability of corn. In the current drought-affected crop year, 40 percent of the U.S. corn crop is being fermented. There is not enough corn left over to export at the quantities the world demands, nor is there enough corn to feed livestock and poultry inside the U.S.
Viewed from the rest of the world, the contortions that the U.S. puts itself through to accommodate ethanol production had one clear result, much higher corn prices. Millions of acres of land once unprofitable for corn production suddenly became highly profitable in the last five years. As a result, corn production rocketed upward by 100 million metric tons. With little U.S. corn on offer and prices sky high, it is now easy to undercut the U.S. in the world market.
Growing corn production in the rest of the world
By increasing production, the rest of the world is coming to the rescue of the long-suffering U.S. poultry and livestock industry. Higher world production will eventually and inevitably bring prices down. The cure for high prices, as economists always say, is high prices. Production will soar in the rest of the world until one fine day when prices collapse.
When the dust finally settles, a new landscape will come into view. In that new landscape, there will be four new features:
- Corn prices will be much lower than the highest prices recently.
- Corn prices will be relatively stable (compared to recent years).
- Brazil and Argentina combined will far surpass the U.S. in corn exports.
- The country that once had a lock on the lion’s share of the world corn market will be dealing with the aftermath of a land bubble inflated by ethanol and burst by the unforgiving laws of economics.