Weekly Insights: Long-Term Coarse Grain Outlook
Long-Term Coarse Grain Outlook
The long-term report includes fundamental 10-year long-term forecasts for cotton, coarse grains, rice, soybeans, and wheat for 17 countries and regions. The major changes from the last long-term International Report in April 2020 was covered in Weekly Insight “Long Term Issues Impacting World Ag” segment. Resting in the background of the analysis are the past estimates of global population growth, both for individual countries and accumulating to the global situation. The United Nations (UN) publishes historical global estimates of population.
China Agriculture Imports
With per capita consumption (PCC) still well below developed countries, the consumption rate could be much higher depending on to what level of imports China allows. Does being self-sufficient mean no imports or not being too dependent on any one country? India appears to define self-sufficient as producing what is consumed in the country. The number of imports or exports in any given year is dependent on weather events. China seems to define self-sufficient as not being too dependent on any one country. The significance is while other exporting countries increasing production increases competition for the U.S., the increasing production provides confidence to importing countries governments that imports can be increased without sacrificing national security. It appears when the U.S. became less dominant, China was more willing to greatly increase soybean imports. Over the next decade, Higby Barrett believes as South America and Ukraine increases corn production by 87 MMT and FSU increases feed grain production by 18 MMT, the extra 105 MMT of production will provide Chinese leaders the confidence that corn and feed grain imports can be increased without sacrificing national security.
Another issue that a growing economy experiences is surges of price inflation. China’s government policy of providing incentives to quickly rebuild and expand the hog industry while allowing the poultry industry to expand points to China allowing more grain and soybean imports in the future. Pork is a favorite meat in China. To prevent public unrest, it is important that China allows the world to lower the domestic prices for basic commodities. Because inflation played a major role in the Communist coming to power, keeping domestic price increases under control is an important policy consideration within the Chinese government.
China has almost 200 MMT of corn stocks, which means China does not have to import any corn. It should be noted that China greatly expanding corn imports would solve several long-term and short-term issues. First, increasing corn imports would allow China’s meat industry to grow and reduce domestic meat cost. Second, increasing corn imports would allow China to meet Phase One trade import goals. Third, increasing corn imports would encourage more corn production in the world to meet future needs. Fourth, corn imports would support China’s continued investments in South America and Africa. Fifth, China will have a stronger negotiating position in nonagricultural world disputes. In addition to the five reasons stated, low crop prices experienced in the first two quarters of 2020, the prospects of a very large U.S. corn crop, and lower ethanol corn consumption makes increasing imports to build corn stocks extremely logical.
China Coarse Grain Imports vs. U.S. Coarse Grain Share of World Trade
Source: USDA and Higby Barrett
China’s government will likely issue new import quotas to buy millions of additional tons of corn in 2020-21, three industry sources cited by Reuters have indicated. One source also indicated COFCO has already received and used a special low tariff rate quota (TRQ) of at least five MMT to book primarily U.S. corn supplies for delivery through April 2021. Chinese commitments already exceed its USDA WASDE reported annual 7.2 MMT TRQ. Reuters sources indicate China has already booked around 12 MMT of corn from the U.S. and around 5 MMT from other countries. Pro Farmer reported “Chinese corn prices are surging as its domestic crop was damaged by typhoons and flooding, its once massive reserves of corn have been whittled down and China is working to rebuild its hog herd. Plus, the Phase One trade deal gives China incentive to bring in more of the grain from the U.S.”
China’s imports of corn, wheat and sorghum are significantly higher than calendar year 2019. Customs data released by China shows the country has already imported 6.7 MMT of its 7.2 MMT corn TRQ for 2020, with three months remaining in the calendar year, which is 72.5% higher than 2019. China has never fulfilled its quota. Also included is 1.1 MMT in corn imports during September, which was a 675% increase from 2019. China’s imports of wheat, barley and sorghum were also up sharply from year-ago in September at 1.1 MMT, 1.3 MMT and 570 TMT, respectively. China’s year-to-date wheat imports of 6.16 MMT is 168% versus 2019 and near the wheat TRQ of 9.6 MMT. China’s sorghum imports through September have increased 463% versus 2019 to 3.5 MMT and barley imports of 4.6 MMT are slightly higher.
The combination of China aggressively rebuilding and transforming its animal operations supply chains from small backyard operations to large modern commercial operations that require higher quality feed mills while Brazilian farmers are ramping up production will result in world soybean and corn consumption being much higher than current USDA market 2020/21 marketing year expectations. USDA finally did changed the China coarse grain import number in the November WASDE report.
Per Capita Consumption and Domestic Consumption
World coarse grain PCC is growing over the ten-year forecast period with the primary driver shifting from ethanol to feeding. The recent collapse in crude oil prices has accelerated this trend. The rate of growth is slowing, as the level of government policy support for corn-based ethanol declines.
Coarse grain PCC experienced a sharp upward trend over the past decade-plus associated with the expansion of ethanol production. Between the 2002 and 2016 crop years, consumption jumped by 27% from 316 pounds to 401 pounds. In the U.S., where corn dominates the coarse grain statistics as well as playing a major role in the world numbers, per capita consumption increased 36 percent. Chinese PCC is up to 461 pounds in 2018 or up 95% from 2002 PCC of 236 pounds.
Further gains in coarse grain PCC are forecast into the next decade but at a moderating pace. Where U.S. PPC increased dramatically during the ethanol buildout, growth is projected to decrease two% this next decade. China grew 40% between 2011 and 2020. China’s 10-year outlook is up a still formidable 28%, but well off from the pace of the previous decade. To reach a 28% increase in PPC, China will have to dramatically increase coarse grain imports.
World PPC coarse grain consumption is projected to increase from 418 pounds in 2021 to 453 pounds in 2030, an increase of 9%. Over the previous 10 years, the increase was 14%. Africa PCC has essentially been flat to declining, which is pulling down the world PCC.
Coarse Grains Per Capita Consumption (top five)
Source: USDA and Higby Barrett
The Asian Growth Center experiencing higher incomes is driving increased consumption of meat. The United States Department of Agriculture (USDA) Foreign Agriculture Service (FAS) Global Agricultural Information Network’s (GAIN) China Feed Grain report supports the idea that a vast hog and poultry expansion is underway. Chinese government officials have reported they are investing heavily in world class hog operations that will quickly bring production back online. The ability of hogs to reproduce makes this very easy to do from a biological standpoint.
Global coarse grains utilization is estimated at 1,452 MMT in 2021. Corn comprises 80% of the total. The U.S. accounts for approximately a quarter of the total consumption. In 2030, China coarse grain domestic consumption is forecast to eclipse the U.S. Obviously, developments in those two countries will have major impacts on the world forecasts. By 2030, world use is forecast to 1,750 MMT or an increase of 18% from 2021. The impact of COVID-19 and ASF on coarse grain consumption was overstated in the April report. Population growth contributes 8.6% with income growth accounting for 9%.
Coarse Grains Domestic Consumption
Source: USDA and Higby Barrett
A driving force in coarse grain consumption was the expansion of renewable fuel policies that increased ethanol demand into the most recent years when the long-term targeted ethanol production goals were reached. Assuming constant acreage times an average yield increase minus the change in ethanol consumption, the marginal corn supply impact from 2005 through 2010 was ethanol corn consumption increased 2.8 billion bushels more than yield, which resulted in feed consumption declining 1.3 billion bushels and exports declining 300 million bushels. With environmentalists questioning the benefits of corn-based ethanol, renewable fuel policies that will significantly impact corn consumption are not expected to be enacted. With ethanol domestic consumption and exports expected to increase 50 million bushels (137.5 million gallons) per year, U.S. corn domestic consumption and exports will have to increase approximately 125 million bushels annually to keep acreage from declining.
COVID-19 has had a major impact on gasoline consumption in 2020, which has directly impacted ethanol consumption and effectively increased 2019/20 corn supplies by 676 million bushels. Brazil and the U.S. have very large ethanol industries, but Brazil’s primary feedstock is sugarcane while the U.S.’s primary feedstock is corn. The Renewable Fuels Association claims 75 of U.S.’s 200 ethanol plants were idled, and 71 others have reduced rates during 2020. It is believed once the economy is reopened, the ethanol corn consumption will return, but not to the previous level.
U.S. Marginal Corn Yield and Ethanol Impact
USDA and Higby Barrett
In the forecast, the pace of consumption gains is moderated to account for the limited upward demand growth expected for U.S. ethanol production. The key to the corn forecast verifying is China continuing the policy of animal production expansion. China has limited acreage and a growing consumption base. Without a prolonged recession to reduce consumption, China will either import more crops or risk runaway inflation. Lower world ethanol corn consumption has reduced the challenge of China importing more corn. The 2030 forecast for world total consumption is at 1,370 MMT or an increase of 16% from 2021.
Corn Domestic Consumption
Source: USDA and Higby Barrett
The primary reason for lower world consumption is the assumption crop yields will increase at a slower rate than the previous ten years. Higby Barrett’s World coarse grain yields have been on a steady upward trajectory over the past decade. The forecast incorporates some moderation to the growth pace in the global coarse grain yields. The new land area coming into production in South America has about half the yield as current land in the U.S. Plus, the higher yield gains occurred in a high price environment that encouraged more fertilizer use and investments in equipment. On the flipside, because corn yields are higher than other coarse grains, if corn’s share of the coarse grains increases, coarse grain yields might increase faster than the previous 10 years. Currently, corn is approximately 80% of coarse grain production.
By 2030, coarse grain yields are projected to be 4.9 MT/HA, which would be up 12% from 4.4 MT/HA in 2021. This is not an unusually low growth rate for coarse grains. It is between the yield growth rate from 1990 to 2000 of 12% and the yield growth rate from 2011 to 2020 of 17%. Of course, if yields were to continue to grow at the recent pace of 17% over one decade, there are only the possibilities of higher consumption and/or lower area to avoid 85 MMT of additional global stocks. With many corn acres in Brazil being double cropped with soybeans, reducing acreage will be unlikely. If animal feeding increases for corn, animal feeding will also increase for soybean meal, which would increase the need for soybean acres. If price declines, some farmers will reduce yield improvement inputs, which will lower forecasted yields and increase consumption.
Acreage and Production
In other industries, lower prices would translate into lower production, but world agriculture is influenced by several market distorting policies. World agricultural policies are driven by national security concerns and domestic employment concerns. No country wants to be dependent on another country for basic commodities. The U.S./China trade war illustrates the importance of having a strategy in place. Also, world agriculture still employs a very large number of people at the farm and in downstream industries. As a result, sharp declines in price do not have the same impact on production that occurs in other industries.
As a result of seed technology and equipment breakthroughs, corn yields experienced strong growth, which has led to farmers planting more corn worldwide. Soybeans are an agronomically friendly crop to rotate with corn. The corn/soybean crop rotation has shifted acreage from other oilseeds, wheat and feed grains into corn and soybeans.
In the 1990s, world agricultural policies were altered to allow the farmer an opportunity to plant new crops without losing government benefits. In the 2000s, agronomic challenges slowed the rate of corn and soybean plantings, but renewable fuel policies encouraged more corn production.
Drier climates that experience high heat or extreme cold were not suitable for corn and soybeans. New short season seed varieties and drought resistant varieties have pushed corn and soybeans into new territories with limited success. Without a significant seed breakthrough or a return to expanding renewable fuel policies, corn and soybean acreage will expand primarily with new Brazilian and African acreage.
Coarse grain production is projected higher along the lines of its long-term upward pace for the forecast period. The latest forecast for 2021 area is 336 million hectares. By 2030, the area forecast is 349 million or an increase of 4% from 2021. The 2030 production forecast of 1,713 MMT is up 16% over the decade. In comparison, the gain between 2011 and 2020 was 24%.
The large gain in production was driven by world policy requirements for biofuel consumption. The world environmental groups now have a variety of opinions about the environmental impact of crop-based fuels. For example, if the carbon impact of growing corn is included in the carbon impact analysis for ethanol, corn-based ethanol scores very low on net carbon reduction. Assuming the corn would be grown anyway and therefore excluding the carbon impact of corn production, the carbon score improves dramatically.
Coarse Grains Production
Source: USDA and Higby Barrett
The increase in world corn area over the last decade has been impressive. In 2008, world corn area was an estimated 159 million hectares. As an oddity, estimated Chinese area at 31 million, U.S. area at 32 million and total African corn area at 29 million were very close together. China’s corn area was jumping higher until 2015 and then declined for the next four years until increasing in 2020. By 2030, China’s corn acreage increases to 45 million hectares. China just does not have the available area to expand to meet a goal of total self-sufficiency.
Acreage gains in Africa outpaced those of the U.S., and by 2013, the continent’s plantings edged ahead of the U.S.’s corn area. By 2030, Africa’s corn acreage is expected to exceed 41 million hectares. It should be noted that Africa has plenty of land available for corn production.
World corn area totals 197 million hectares in 2021. By 2030, the area is forecast to grow to 205 million or an increase of 4%.
Whereas China dominates the country and regional designations with the most corn area, the U.S. remains the world’s production leader. The U.S. is on pace to produce 368 MMT in 2021. The record was 385 MMT in 2016, which should be broken in 2023. Brazil is growing the quickest with an expected record crop of 110 MMT in 2021. Due to lower yields, Africa production is only 84 MMT in 2021.
The differences in production, of course, are related to yields. U.S. corn yields are the highest among the 17 countries and regions. In 2021, the U.S. is estimated over 11 MT/HA compared to Brazil under six MT/HA, China over six MT/HA and Africa over two MT/HA.
Corn Harvested Area
Source: USDA and Higby Barrett
Countries and Regions
Argentina, Australia, Brazil, Canada, China, India, Japan, Mexico, United States
Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde Islands, Central African, Republic, Chad, Comoro Islands, Congo, Egypt, Equatorial Guinea, Ethiopia, French Equatorial, French North Africa, French West Africa, Gabon, Gambia, Ghana, Ivory Coast, Kenya, Lesotho, Liberia, Libya, Malagasy Republic, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Niger, Portuguese Guinea, Reunion, Rwanda, Sao Tome Principe, Senegal, Seychelles, Sierra Leone, Somali Republic, South Africa, Spanish Africa, Sudan, Swaziland, Tanzania, Togo, Tunisia, Uganda, Zaire, Zambia, Zimbabwe
Indonesia, Malaysia, Singapore, South Korea, Taiwan, Thailand
Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom
Former Soviet Union
Armenia, Azerbaijan, Byelorussia, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan
Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Turkey, United Arab Emirates, Yemen
Afghanistan, Bangladesh, Brunei, French Pacific Islands, Fiji, Indochina, Khmer Republic, North Korea, Laos, Macao, Myanmar (Burma), Nepal, New Caledonia, New Hebrides, New Zealand, Other Pacific Islands, Outer Mongolia, Pakistan, Papua New Guinea, Philippines, Portuguese Timor, Sri Lanka, Tonga Island, Vietnam, Western Samoa
Other Latin America
Bahamas, Barbados, Bermuda, Belize, Bolivia, British West Indies, Chile, Colombia, Costa Rica, Cuba, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Martinique, Netherlands Antilles, Nicaragua, Panama, Paraguay, Peru, St. Kitts, St. Lucia, St. Vincent, Suriname, Trinidad-Tobago, Uruguay, Venezuela