The global export market for corn has more than doubled in the last twenty years. Yet, during this time the U.S. export volume has remained virtually stagnant. Why?
The majority of global demand has been picked up by Brazil, Argentina, Ukraine and Russia. While the U.S. made up more than 50% of the world’s corn export market roughly twenty years ago, it has dwindled to roughly one-third (It was 70% in the early 20th century). And this is not expected to change.
Our corn market has struggled to be competitive with the rest of the world, and much of this has to do with currency. The U.S. still has a relatively strong currency with the ability to seemingly print money at will. That’s something other countries cannot afford to do or who are looked upon unfavorably if they do in fact do it. This weakens their currency, making their exports cheaper than ours.
This is one factor that led the farm depression in the 80’s. Rising interest rates caused money from around the world to flow to the U.S., pushing our currency higher and higher, making our products unaffordable.
We have a somewhat similar situation today. COVID-19 has put tremendous pressure on global economies, many of which are not able to withstand the loss of economic output as we are.
Brazil is a prime example. Its currency has devalued by as much as 40% since January. The country’s currency was already under pressure from poor economic outlook and low oil prices. The coronavirus just made it worse.
In times of turmoil, capital flows to safe havens and the U.S. dollar is still the world’s currency. While Brazil’s management of the pandemic mirrors that of the U.S., its currency has had a very different response, falling in value, thus making its products cheaper for China to buy.
Meanwhile, the U..S has typically had very strong domestic consumption it could rely on through both feed and ethanol use. But the pandemic turned demand on its head, making exports more important than ever.
There won’t be a repeat of the 80’s however, because this time we have other safety nets such as crop insurance, higher farm equity levels, and lower interest rates keeping things in check.
No incentive to expand
Even so, the current global situation means U.S. farmers have no incentive to expand corn acres beyond where we are at now. If they do, they know they will be penalized by flooding the market and hurting prices.
Even if we were to leave acreage where it is, we still expect foreign competitors to expand their acreage.
I have seen reports of studies looking for more CRP type programs where the government pays us to not plant. This will not work in the long run. There may be a temporary boost to the market, but we are essentially surrendering planted area to our global competitors.
This is no different than the wheat market. Every year we plant a little less wheat and Russia or someplace else plants a little more. The change may be small from year to year, but over the course of 20 or 30 years, it begins to add up.
More government bailouts?
What is the solution to all of this? So far it has been an increased request for government bailouts. I am not opposed to temporary support as long as there is a strategy towards long term profitability and I frankly have not seen it.
We have sacrificed our export market in the trade wars for which we have yet to get anything in return. The ethanol industry has been ignored despite its significant advantages for the country. We are at a turning point where we need our government leaders to provide a plan to give us back our trade markets and help to further bolster ethanol consumption. Otherwise we are destined to take the path of Europe, forever reliant on government welfare.