A profound change in world feed grain markets is around the corner if American and Chinese forecasts prove true.
The United States, the world’s top corn exporter, believes that growing demand from its ethanol industry will slow the growth of its corn exports.
No. 3 exporter China believes it will become a net corn importer by 2010 as its demand outstrips domestic production.
The U.S. Department of Agriculture believes there will be three reactions: corn prices will increase; corn trade will decline as traditional importers increase domestic production to make up for reduced imports; and some countries will increase exports.
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But how the market and farmers adapt to the changes will make for interesting times. There is good reason to hope the developments will support Canadian domestic feed grain prices.
We’ve heard and read a lot about the ethanol boom in the United States, but it is worthwhile to recap the highlights.
As of February, U.S. ethanol plants could produce 16.66 billion litres. It is expected that by 2010 that number will increase to 26.5 billion litres.
The growth will require about 25 million tonnes of corn, bringing the total ethanol demand for corn to 66 million tonnes, out of total U.S. production of 304 million tonnes.
The USDA’s assumption is that this increased demand will be met by increased production and reduced exports.
In its 10-year projection last year, it expected the U.S. to export 68.58 million tonnes of corn by 2010-11. But with adjustments for ethanol demand, the new projection sees exports of only 53.98 million tonnes, a drop of about 14.6 million tonnes from last year’s forecast.
The other big change in world corn trade will come from China. It surprised the world in the late 1990s by becoming a major corn exporter thanks to bumper harvests in the middle years of the decade. Exports hit a record 16.4 million tonnes in 2003, but fell to 2.32 million in 2004 and rose to 8.6 million in 2005.
But Li Ke, director at China’s national Grain and Oils Information Centre analysis department, said last week that he expects imports to resume next year because stocks have been drawn down and demand is exceeding production due to expanding livestock production and China’s own subsidized and growing ethanol industry.
By 2010, Li believes consumption will exceed production by 10 million tonnes. He said it would be difficult for China to increase production significantly because urbanization is eating into farmland.
It is hard to say how all this will affect corn trade, production and prices.
USDA also forecasts a decline in Chinese exports but not as much as Li. It forecasts China will import 1.7 million tonnes by 2010 and export three million tonnes. It sees China shifting to a net importer by 2012-13.
So clearly there are different views on how much China can increase its production. It is hard to say who is right. China suffers a shrinking cropland base and water problems in the northern half of the country, but on the other hand it is not making the best use of existing land. Its corn yields average half those of the U.S. By adopting better seed and crop protection inputs, it might be able to significantly increase yields.
Based on its own assumptions, the USDA 10-year projection forecasts corn prices in the U.S. climbing to an average of $2.60 US per bu. by 2010, up from $2 in 2005-06.
It also has dropped its forecast world corn trade in 2010 to 86.3 million tonnes from 95.2 million forecast last year.
It now assumes importers will increase domestic production to make up for reduced imports from the U.S. and China. It sees some exporters increasing output, such as Argentina, Brazil and some areas in eastern Europe.
A factor that could change this outlook is a breakthrough in technology that would allow the commercial production of ethanol from cellulose found in straw or waste wood, with implications for corn-based ethanol production.
Canada’s SunOpta has announced it will supply equipment to build a commercial cellulose ethanol plant in Spain this year and another Canadian company, Iogen, is also expected to soon announce that it will build a plant in Canada, the
U.S. or Germany.
