For the first time in five years, U.S. corn yields have fallen from the previous year.
That has resulted in a smaller crop and the forecast of the smallest yearend stocks since 1996-97.
That pushed corn prices higher. And because corn sets the foundation upon which most other grains and oilseeds sit, what is good for corn prices is good for wheat, barley, oats, canola and other Canadian crops.
Anytime U.S. corn yields do not follow their long established upward trend, there is cause for concern because the U.S. and the world have come to expect ever-larger American corn crops.
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The U.S. is the world’s largest corn exporter, accounting for 55 percent of global exports, and is the go to supplier when production problems develop somewhere in the world or if demand suddenly rises.
That was the case presented by the U.S. Grains Council last week when it forecast that China’s corn imports could soar to 15 million tonnes annually by 2015 from two to three million this year.
Normally, the U.S. would supply a large part of that growing demand.
But with the growth of its ethanol industry consuming more grain at home, America’s corn production surplus capacity has shrunk.
The ability to increase production by shifting acres from other crops is limited because it could cause shortages in those crops.
So the relief valve has been rising yields. In the 10 years from 2000 to 2009, yields climbed 20 percent.
Thanks to these higher yields, American farmers have been able to supply the growing ethanol industry and still produce a surplus that can be exported.
Likely, the trend to higher yields over time will continue upward thanks to improving crop genetics and other technology, but growth is not guaranteed every year.
It is a bit surprising that yields dropped this year. In the two previous years, cold weather in the spring delayed planting and many analysts predicted that would hurt yields, but ideal weather in the summer made up for the slow start leading to surprisingly high yields. This year, the U.S. Midwest had ideal spring weather but a hot August hammered the crop.
Argentina and Brazil are the other major corn exporters after the U.S. The three will have their work cut out for them if the grains council is correct in its forecast for Chinese imports of 15 million tonnes in only five years.
Until two years ago, China was mostly self-sufficient in corn.
But it allowed imports of about one million tonnes last year after its harvest fell to about 155 million tonnes from about 166 million the previous year.
This year, the official Chinese production estimate is 169 million tonnes, the U.S. Department of Agriculture’s estimate is 166 million and the grains council’s estimate is 158 million, following an annual crop tour last week.
Thomas Dorr, president and chief executive officer of the council, said Chinese yields have grown little since 2002 due to small farm size and lack of access to modern hybrid, genetically modified seed.
China appears to have no concern about its steadily rising oilseed imports, but it has a policy of being 95 percent self-sufficient in grain production. But it will be a struggle to maintain that.
Dorr said China’s demand for livestock feed is expected to grow at a rate of three to six percent per year. Also, the demand from the industrial sector for corn is growing faster, by 15 percent or more next year, Dorr said.
This growing demand profile led to the forecast of sharply increasing imports. Then again, outsiders have for years predicted that huge Chinese corn imports were just around the corner, only to be proven wrong.
But if the false starts are over and China becomes a regular large corn importer, it will be a strong support to all grain prices.
And it will keep the pressure on seed makers to continue turning out higher yielding varieties.
