Grain prices are directly impacted by global trading, regardless of where the crop is grown. “Grain export marketing is not a spectator sport,” said Erik Erickson, director of global strategy for the U.S. Feed Grain Council, at the recent North Carolina All Commodities Conference in Durham.
In the Upper Southeast, corn prices promise to create uncertainty among growers and will likely reduce corn acreage in the Carolinas and Virginia, says Jay Sullivan, president of the North Carolina Corn Growers Association.
Reduction in corn acreage will have a detrimental ripple effect on the region’s livestock industry. Already in a grain deficit situation, the region’s dependence on out-of-state and out-of-country grain to feed livestock is not a good situation for producers.
In the past three years, corn prices have held steady, but this year producers will plant a crop that is more likely to bring between $4 and $5 per bushel, than the $7 to 8 prices they’ve seen in recent years.
A panel of regional marketing leaders for grain and cotton, including Edgar Woods, founder and president of Palmetto Grain Brokerage, agreed with other panel members that not much will likely happen with corn prices over the next few months.
Dave Fogel, vice-president with Advance Trading in Bloomington, Ill., advised growers to do all they can to defend their balance sheets. “No matter what happens with price, always have a firm plan for what to do with your crop, and do it,” he stresses.
Uncertainty over prices for corn has fueled speculation that corn acreage will fall significantly in both the Southeast and Mid-South. “If you look at corn exports and corn use over the past three years, it’s easy to see why growers are heading into the cropping year less than optimistic about the pricing situation,” Erickson said.
Corn exports reached a high of 60 million tons in 2007. By 2012, corn exports dropped to 18 million tons. During that time period corn for ethanol and other domestic uses kept demand high and supply on the low side—an ideal combination for high prices.
The livestock industry, not just in the Southeast, suffered to varying degrees because of the continued high grain prices. Subsequently, many large commercial operations cutback herd size to compensate for extended high grain prices. The combination of lower animal numbers and subsequently less demand for feed grain, combined with lower demand for ethanol production and stable demand for commercial use led to a decline in demand.
Typically, the reduction in domestic demand has been taken up by global demand and exports increased to compensate. However, in the past decade or so, competition for corn export markets has changed dramatically, Erickson pointed out.
For example, Brazil doubled corn exports from 40 million tons to 80 million tons. The Ukraine, which had less than five million tons in the export market less than a decade ago, now exports nearly 20 million tons annually. And, China, which was an exporter of corn a decade ago, is now a leading importer of foreign corn.
China is good market for U.S. corn
In 2013, China imported about seven million tons of U.S. corn. Projections for imports were expected to fall to about five million tons, primarily because of biotechnology issues with U.S. grown corn. In recent weeks, however, the issue has become a bigger issue, and now projections are three million tons to be exported to China.
“My suggestion to U.S. growers is to be patient with China, endure the growing pains of the Chinese economy and their leadership. China can still be a stabilizing factor in U.S. grain prices, but we can’t afford to put all our export eggs in that one basket,” Erickson said.
He points out that every year in the past several years, China has added more than 300 million people to its middle class. That’s the entire population of the U.S. and that growth will provide a demand for high-protein meat that requires lots of grain, he adds.
Erickson showed the 200 or so grain growers in the audience a map of the world. By drawing a line from China to India and making a circle, he notes that more people live in the circle than live outside the circle.
The rapid development of Asian economies and the astonishing growth of the middle class in these countries will have an ongoing impact on grain supply and demand and will indirectly have a significant impact on U.S. grain production.
In the Upper Southeast, demand is not an issue, huge poultry and swine operations in North Carolina and Virginia will take all the local grain they can buy. Supply is the issue and foreign trade that impacts price has a direct, and negative, impact on the livestock industry throughout the region.
The U.S. will likely continue to grow more corn than it can use, but a bigger problem is getting U.S. corn to parts of the U.S. where it is needed most. Current freight prices alone add about a dollar a pound of pork production in the Southeast, putting producers at a distinct disadvantage with Midwest producers.
Conversely, building a grain industry in the Southeast large enough to support the region’s livestock industry is limited by acres planted, which is directly impacted by price.
It’s a classic Catch 22 and both grain growers and livestock producers in the Upper Southeast in particular are caught in a seeming no-win situation. Livestock producers are the best customers grain growers have. If the livestock industry is forced by price to move to locations closer to adequate grain supply, the Southeast grain growers will be looking for new markets for their crop.