The price of corn the past few years spurred global production, and as a result, the U.S. lost export demand. But today’s lower corn price will rebuild demand.
The U.S. will regain a chunk of the corn export market, but not overnight. "It will take a while to recover," says Carl Casale, CHS Inc. president and CEO. Even so, he says that U.S. export market share has peaked because ag production has become more global.
During the next several years, Casale looks for corn to trade in the $4.50 to $7 per bushel range. High corn prices have stimulated farmers elsewhere, even if they can only grow 80- to 100-bushel corn, he says, adding that it will become difficult for them when prices reach $4.50.
As a result, he predicts Brazil and Ukraine will cut back corn acres. "It’s not just the price for them but logistics," Casale says. "It can take $1 per bushel or more to get grain to ports." Some North American farmers will do the same as marginal corn acres are taken out of production, he adds.
The increasing global platform of corn production means that supply disruptions become more commonplace, and that adds up to increased volatility. "Risk management becomes very important," Casale notes.
The greatest risk to producers as margins tighten is land rents that will take time to adjust. "I don’t see a significant decline in land values, but marginal land could decline by as much as 30% in some cases," he says. "The land market will fix itself."
The long-term trend is very favorable, Casale says. The combination of future income growth and population in developing countries bodes well for U.S. exports, he says. Most important is the outlook for China, the world’s largest ag importer. Casale does not expect a softening of China’s economy like some do.
Casale says developing countries don’t need high incomes to become major growth markets.
"The first $10,000 of income drives changes in diets. We don’t need rich economies—just those with incomes of $10,000." Diets don’t change all that much as consumer incomes go beyond that, he adds.
Adapting to global shifts is key to staying competitive. "As fast as the world is changing, doing nothing is a path to irrelevance," Casale explains.
- December 2013