US Corn Industry Faces Tough Times In Its Two Largest Export Markets, China and Mexico

After Russia’s invasion of Ukraine, China has sought new suppliers, including fellow BRICS members Brazil and South Africa, to reduce its dependence on US producers, while Mexico is determined to push through with its partial ban on GM corn.

The United States Department of Agriculture is projecting record bumper crops for both corn and soybeans in 2023. Domestic corn production is estimated to reach 15.265 billion bushels, up 1.535 billion on 2022’s record harvest, largely due to increased planted area. But as supply surges, US corn growers face the prospect of slumping demand in its second biggest export market, China, as well as stiffening regulatory challenges in Mexico, its largest market. Between them China and Mexico accounted for just over half of all overseas purchases of US corn in the last crop marketing year (Sept. 1 2021- Aug. 31 2022).

China Scrambles to Diversify Its Corn Supplies

China has been gradually reducing its corn imports from the US due to a combination of weak domestic demand and cheaper supplies from Brazil. Until recently, China imported roughly 70% of its corn from the US and roughly 30% from Ukraine, according to Brazilian grain exporters group Anec. But after Russia’s invasion of Ukraine, Beijing has, unsurprisingly, tried to find new suppliers to reduce its dependence on US and Ukrainian producers. Two of the countries it has turned to are fellow BRICS members Brazil and South Africa, Africa’s largest corn grower.

The results are already being felt. As Reuters reported in early May, Chinese buyers cancelled  832,000 tons of orders in the last three weeks of April alone. That was enough to push US corn exports to their lowest weekly total on record.

“China has made a strategic decision that rather than deal with the United States and our political differences, they will just buy from Brazil,” said Jim Gerlach, president of broker A/C Trading in Indiana.

Brazil is not only providing China with cheaper corn but is on track to overtake the US as the world’s largest corn exporter this year. From Bloomberg:

Increased competition from Brazil is underscored by forecasts for it to pass the US as the top exporter this year.

China went on a corn buying spree in March, with purchases of almost 4 million tons announced by the US government between March 14 and April 14. But US corn is now less competitive, with supplies from Brazil about $30 a ton cheaper for delivery in the third quarter, traders said. Weak domestic demand for corn as animal feed is also a reason behind the cancellations.

Another reason China has been cancelling orders is that it also anticipates a bumper corn crop this year. Farmers in the northeast, the top production region for corn and soybeans, have been more inclined to grow corn due to higher profits and easier management, CITIC Futures said. But increasing competition from Brazil is also taking its toll. Last year, China was already the destination of 1.16 million tonnes of corn from Brazil, almost all of which was shipped in December.

Preparing for Further Fallout from US-China Trade Wars

Despite the increase in domestic corn production, China is forecast to import 20 million tonnes this year, according to Anec. How much of that will come from the US remains to be seen. Many US farmers are already fretting about the risk of further fallout from the escalating US-China trade wars. Soybeans farmers already lost in excess of $25 billion worth of agricultural exports to retaliatory tariffs a few years ago, as S&P Global noted in a market report last August.

“We [US farmers] somehow managed to pull through the last trade spat with China, but afterwards, we did lose some of the market share to Brazil,” said an Illinous-based soybeans farmer.

“Another round of trade restrictions from China could see us losing a significant volume of sales, which we can ill afford,” another farmer said.

So, the question is: are US farmers’ concerns justified?

Data doesn’t lie. The fact remains that China is the biggest market for American farmers. The world’s second-largest economy with a 1.4 billion population consumes roughly a fifth of US agricultural exports every year.

In fact, China is almost indispensable for American agriculture, especially soybeans and corn. In 2021, 52% of the US soybean shipments of 53 million mt were sold to China, according to the US Department of Agriculture. China also purchased 27% of 69 million mt of exported corn last year.

The second biggest buyer of US corn is Mexico, which bought $4.92 billion of the (largely) yellow foodstuff in 2022. Together, the two countries account for well over half of all foreign purchases of US corn as well as roughly 60% of US soybeans and 34% of all US agricultural exports. Like Beijing, Mexico is now shopping around for alternative suppliers of corn, its number-one staple food, albeit for different reasons.

As regular readers know, what Mexico wants is to grow its own non-generically modified corn and import only non-GM corn to meet domestic demand for human consumption. And almost all the corn the US exports is genetically modified. The Mexican government’s reasons for doing so include protecting the health of the population, the environment and Mexico’s bewildering genetic diversity of maize. The government also wants to halt and ultimately reverse its acute — and growing — dependency on US imports for all of its main food staples, as illustrated in this graph:

Source: Timothy A Wise

As I have noted before, Mexico’s dependency on US staples is largely the result of NAFTA, which eliminated the Mexican government’s protection mechanisms for Mexican farmers while preserving U.S. corn subsidies for US farmers and Big Ag corporations. Two years after NAFTA, the Clinton Administration’s Farm Bill dismantled the last vestiges of U.S. government policies designed to boost prices by limiting overproduction.

The result was as predictable as it was brutal: the US flooded Mexico with staple foods at prices Mexican growers could not possibly compete with, forcing many of them out of business while discouraging others from trying to expand production. According to the Institute for Agriculture and Trade Policy (IATP), in 16 of the 28 years since NAFTA took effect, the U.S. exported corn, soybeans, wheat, rice and cotton at prices 5-40% below what it cost to produce them.

Reversing the Trend

Mexico’s President Andrés Manual Lopéz Obrador (aka AMLO) is determined to reverse this trend by reducing Mexico’s dependence on imported foods, though he faces an uphill challenge in actually pulling it off…

Read the full article on Naked Capitalism

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