Ken Hobbie has the "faith of Job” in America's ability to feed the world. Despite this summer's flooding and delayed crop progress, the president and CEO of the U.S. Grains Council is convinced American farmers will surpass corn crop projections to satisfy demand both at home and overseas. USDA's August crop projections show a half-billion-bushel increase in corn crop estimates over July, strengthening Hobbie's convictions.
"I've spent the last six months reassuring international buyers that we continue to be a reliable source of feed grains,” Hobbie says. "We've finally got the world turning to us for their needs, and we don't intend to lose customers now.”
Despite higher corn prices and still comparatively high ocean freight rates due to fuel costs and strong demand for ships, U.S. corn exports to all nations are up 9% over year-earlier levels. In its August report, USDA raised global consumption of U.S. corn to nearly 800 million tons, up from a record 775 million tons earlier this year.
Yet the outlook for tight corn ending stocks and doubts about the actual size of this year's crop provide a daily reminder of the razor's edge that grain supply/demand will be on for the rest of the year. Even before June floods, U.S. corn stocks fell to the second tightest in history and world stocks hit record lows. It will take "everything we've got,” admits Hobbie, to meet livestock, ethanol and export demand going forward.
Weak dollar as strength. Normally, higher crop prices lead to lower crop exports, but the weak dollar has been offsetting that impact, says Mike Woolverton, Kansas State University ag economist. "Simply put, $6/bu. corn in the U.S. looks like $4/bu. corn to overseas buyers.”
The dollar has been showing signs of strengthening (see "Market Strategy”), but according to the International Monetary Fund and the Federal Reserve Board, through USDA, it is expected to remain weak for the rest of 2008. They say it is likely to continue to decline versus the Japanese yen and the Taiwanese dollar, hold steady against the Canadian dollar and the Mexican peso, and strengthen versus the South Korean won.
"These trends bode well for U.S. agricultural exports,” says Chad Hart, director of the Center for Agricultural and Rural Development at Iowa State University. In fact, averaged over all U.S. agricultural trading partners, the dollar is projected to decline by 9% this year.
Hart adds that the weak dollar also mutes price signals for international producers. For corn, the 2007/08 production response amounted to less than a 1% production increase internationally, mainly from South America and South Africa.
"In the long term, we should expect a larger international acreage response to the high crop prices we see today, but the weak dollar is currently mitigating some of that response,” Hart says.
Who's buying? With record-high U.S. corn prices, the big question this year is "who's buying?” The answer may surprise you, says Rich Nelson, director of research for Allendale, Inc., a commodity research advisory firm in McHenry, Ill.
While Japan is the single largest buyer of U.S. corn and last year accounted for 29% of total U.S. exports, the current situation is a little different, Nelson says. The U.S. dollar is not at major lows against the Japanese yen. Therefore, the Japanese are feeling more of the effect of the higher U.S. corn price, and sales to Japan are up only 6%.
- SEPTEMBER 2008