Corn / Maize is the most cultivated grain in the world. The United States produces almost half of the world's harvest; other top producing countries are as widespread as Argentina, China, Brazil, France, Indonesia, and South Africa. Over the past several years world supply has been unable to meet demand (See Chart - World Corn Production vs. Usage) this has been compounded by the ever increasing alternative uses for corn in the alternative fuel sector.

Increased Corn Demand for Ethanol

Corn used to produce fuel ethanol, is concentrated in the United States where a projected 55 millin tons, or one fifth of the projected 268-million-ton corn harvest for 2006, will be used for this purpose. This year the climbing use of corn to produce automotive fuel will catch up with the U.S. export of corn, which is also estimated at 55 million tons (See Chart - US Corn Use for Ethanol vs Exports). For perspective, although 55 million tons is only 16 percent of the U.S. grain harvest, it exceeds the total grain harvest of Canada.

In the U.S. Corn Belt states, ethanol distilleries are taking over the corn supply. In Iowa, a staggering 55 ethanol plants are operating or have been proposed. Iowa State University economist Bob Wisner observes that if all these plants are built, they would use virtually all the corn grown in Iowa. In South Dakota, a top-ten corn-growing state, ethanol distilleries are already claiming over half of the corn harvest.

With so many distilleries being built, livestock and poultry producers fear there may not be enough corn to produce meat, milk, and eggs. And since the United States supplies 70 percent of world corn exports, corn-importing countries are worried about their supply (See Chart - World leading Corn Importers). 

Food Grain vs. Fuel Grain

Since almost everything we eat can be converted into fuel for automobiles, including wheat, corn, rice, soybeans, and sugarcane, the line between the food and energy economies is disappearing. Historically, food processors and livestock producers that converted these farm commodities into products for supermarket shelves were the only buyers. Now there is another group, those buying for the ethanol distilleries and biodiesel refineries that supply service stations.

Corn Based Fuel Production

Crop-based fuel production is now concentrated in Brazil, the United States, and Western Europe. The United States and Brazil each produced over 4 billion gallons (16 billion liters) of ethanol in 2005. While Brazil uses sugarcane as the feedstock, U.S. distillers use grain—mostly corn. The 55 million tons of U.S. corn going into ethanol this year represent nearly one sixth of the country’s grain harvest but will supply only 3 percent of its automotive fuel.

Brazil, the world’s largest sugar producer and exporter, is now converting half of its sugar harvest into fuel ethanol. With just 10 percent of the world’s sugar harvest going into ethanol, the price of sugar has doubled. Cheap sugar may now be history.

China’s Ethanol Production

Chinese Ethanol production in 2005 was approximately 920,000 metric tons (MT), with a production capacity of 1,020,000. Biodiesel production totaled between 100,000 and 200,000 MT. China’s current biofuel development policies are to increase ethanol production to nearly 4 million MT by 2010 and meet 15 percent of China’s transportation energy needs by 2020. The ability of China to meet these objectives depends on competing uses of inputs, including corn, wheat, rice, sugar, cassava, sorghum and oilseeds, and outputs, including sweetener, and alcohol.

China currently uses corn to prodce 90 percent of its ethanol, with wheat a distant second. This dependence on corn might impact China’s feed industry during upcoming years. Ethanol production already uses up 40 percent of the total industrial corn use in China.

World Corn Trade

While the United States dominates world corn trade (See Chart - Leading Exporters of Corn), exports only account for a relatively small portion of demand for U.S. corn—about 20 percent. This means that corn prices are largely determined by supply-and-demand relationships in the U.S. market, and the rest of the world must adjust to prevailing U.S. prices. This makes world corn trade and prices very dependent on weather in the U.S. Corn Belt.

However, Argentina, the second-largest corn exporter in most years, is in the Southern Hemisphere. Farmers there plant their corn after the size of the U.S. crop is known, providing a quick, market-oriented supply response to short U.S. crops.

China has been a significant source of uncertainty in world corn trade, swinging from being the second-largest exporter in some years to occasionally importing significant quantities. China's corn exports are largely a function of government export subsidies and tax rebates, because corn prices in China are mostly higher than those in the world market. Large corn stocks are expensive for the government to maintain, and Chinese corn export policy has fluctuated with little relationship to the country's production, making China's corn trade difficult to predict.

Several countries—including Brazil, Ukraine, Romania, and South Africa—have had significant corn exports when crops were large or international prices attractive. As countries like Hungary enter the European Union, their corn shipments that previously went to the rest of the world have been diverted to the EU.

World corn trade peaked in 1980/81 with large imports by the Soviet Union and Europe. Since then corn imports by EU countries have declined steadily as the Common Agricultural Policy limited grain imports and membership expanded. At the end of the 1980s, the Soviet Union's political and economic reforms led to a liquidation of livestock herds and a drop in corn imports in the former Soviet Union and Eastern Europe. During the same time perod, Japan, South Korea, and Taiwan continued to increase corn imports to support increasing meat production and consumption.

Developing countries worldwide have continued to increase corn imports at a fairly steady pace since 1980 (See Chart Leading World Importers of Corn). This growth in developing-country imports has propelled corn trade above 70 million metric tons each year since 1999/2000. Projections for U.S. corn exports are in USDA's

Japan is the largest corn importer by far. While producing almost no coarse grains, Japan is a very large meat producer, so the country is a steady buyer of corn, with attention to quality. In recent years, Japanese imports of corn for livestock feed have stagnated, while imports for industrial use and starch manufacturing have increased. South Korea is the second-largest importer of corn in the world. South Korea is a price-conscious buyer, willing to switch to feed wheat or other coarse grains, and ready to buy corn from the cheapest source. Mexico is a growing importer. While a large corn producer, Mexico processes much of its production of white corn into human food products, but has turned to imported yellow corn and sorghum for livestock feed to support increased meat production.

Foreign demand is not only dependent on importing countries' demand for feed ingredients but also those countries' internal policy changes that adjust prices and/or the availability of competing products. Coarse grains can often substitute for each other in feed use. Corn competes with other feed grains, as well as with wheat and nongrain feedstuffs such as cassava. Oilseed meal and other protein sources serve mostly as complements to grains, but can also be substitutes, especially those protein meals with low-protein content. Flexibility in many markets, however, is limited by the types of animals fed, the desire to maintain stable rations, local preferences, and import tariffs and laws. Importers not only substitute among grains, but may switch suppliers of the same grain based on price, quality, availability, credit, or other trade services.

Corn Outlook - Every month the USDA publish their Global Outlook on corn, which examines supply, use, prices, and trade for corn, including supply and demand prospects in major importing and exporting countries including Argentina. If you wold like to find out further information with regards to the Corn outlook it can be found here: Economic Research Service at the U.S Department Of Agriculture.