Putting US corn markets and trade in perspective

Ask any three people in a rural cafe about the trade and retaliatory tariff situation in United States agriculture today, and you’re likely to have three very different views.

The perspective changes if you look at the situation in the short term versus the long term and many agree that’s important to remember as this complex conversation continues.

The economist

The Aug. 10 World Agricultural Supply and Demand Estimates report forecasted corn production to reach 14.6 billion bushels, up another 356 million bushels from July. The U.S. Department of Agriculture’s Crop Production report predicts that Nebraska, and much of the Corn Belt will surpass their 2017 yields, while states to the south such as Kansas will have lower yields.

Professor and Extension Economist Kim Anderson, Oklahoma State University, discussed those numbers and what they mean short term for corn farmers in this challenging trade environment and low farm economy.

“Higher production by default results in lower prices, which is a negative for the corn producer, but positive for end users,” Anderson explained. U.S. ending stocks will be about the same or slightly less than 2017.

With or without tariffs, the demand for corn is still there, Anderson said, and will keep prices from dropping too much. On the world market, even though WASDE predicts high world production, ending stocks are still predicted to go down, from 7.6 billion bushels to 6.1 billion bushels.

Trade with Mexico is on the minds of many corn farmers, but Anderson explained that for corn growers the situation might not be as bad as it seems at first glance. Mexico appreciates the reliability and quality of U.S. corn and the transportation advantage trumps all other competitors, he said. This is despite recent Mexican purchases of corn from Argentina.

Anderson warned the potential disrupters are Ukraine and Russia. Both countries are on the same latitude as North and South Dakota. If they successfully switch many of their wheat acres to corn and soybean production that has the potential to greatly affect U.S. corn prices on the world market, Anderson said.

“They can raise soybeans and corn,” Anderson said. “Look what they’ve done to the world wheat market. They’ve established the wheat price and the world market reacts to what happens in Russia and the Ukraine.”

The farmer

Terry Vinduska is a diversified crop farmer in Marion, Kansas, and former chairman of the U.S. Grains Council. At his farm level, he’s dealing with a devastating drought that caused many producers in his county to chop their corn for silage. What little corn is left is expected to yield half or less of what it would. This, combined with a low market price, means Kansas farmers like himself and his neighbors are producing corn for a price below their cost of production and they are losing money.

Now, more than ever, he says it’s critical for U.S. farmers to have access to foreign markets for their production to provide stability now and in the future to prices at the farm gate. It’s a point politicians may not fully understand.

Vinduska’s decades of international experience through U.S. Grains Council, allows him to see the short-term and the long-term implications of trade re-negotiations and retaliatory tariffs on his farm and on the U.S. agricultural economy.

“It’s no secret that trade is a huge part of our price for corn,” he said. “For any of our grains right now the overseas demand determines if we’re profitable selling corn or not.” Free and unrestricted access to export markets is critical for keeping ending stocks in check and maintaining a price for everyone in good years and in bad years across the U.S.

Sitting across the boardroom table from foreign buyers, Vinduska has seen the value of relationships in making the sale, and it’s something U.S. corn farmers might not fully understand, he said. Especially when in the short term, world corn demand is there and corn is moving from the U.S.

“For many years the U.S. has sold on reliability and value and that we’re an honest trading partner,” he explained. “When you shake a hand, you look them in the eye and you tell them we will provide corn to meet your needs. I feel like we’ve betrayed their trust. That we’ve kicked them in the shins and walked away from many of our trade deals.” That perception, he warned, could wind up with long-term consequences for future sales, as well as losing market share that’s been hard won over decades of work. “

Vinduska said he just wants to compete on an even basis with corn farmers around the world, without tariffs or threat of retaliatory tariffs getting in the way.

“I believe if that was the case, U.S. corn, because of our productivity overall, would blow the world away,” he said. No one wins, he said, when countries retaliate against the U.S. by imposing tariffs or trade restrictions on corn and agricultural products for U.S. tariffs on their non-agricultural imports.

The council

The purpose of the U.S. Grains Council is to develop markets for U.S. grains, explained Melissa Kessler, director of Strategic Relations. But trade negotiations and international markets add up to a very complex situation with many angles and no simple answers.

Kessler says the council tells their members that “trade policy plus market development equals sales.

“From that perspective,” she added, “the current challenges aren’t helpful.”

And yet, in the short term, there’s some good news.

The USGC uses a formula to calculate the exports of Feed Grains In All Forms—it calculates the entire picture of what farmers are producing as far as feed grains and what’s leaving the country in some form or another for export customers, she explained. That includes value-added products, such as pork or ethanol.

“We export 15 percent of the commodity corn we grow, but when we add in all the other pieces it’s more like 20 to 25 percent,” she said. “Corn exports might be slightly down, but FGIF is slightly up and possibly at a record level, and that was largely driven by ethanol this year.” In the short term, individual markets buying at specific times and specific quantities affects basis, and the price on the board is influenced by these sales over a longer period, she explained.

The upside to the current trade environment is that it’s encouraging everyone in the market development arena to look to new markets, new places for sales that haven’t been approached before now, Kessler said. For example, when Dried Distillers Grains were shut out of China and Vietnam last year, that pushed the industry to seek new markets for DDGs and it wound up selling almost the same amount over last year years, even with the huge policy issues at play, she said.

“I think the challenge is that we don’t know for certain what the long-term impact will be,” she said. “But in the short term, there’s a plethora of tariff-related challenges. For instance, there’s now a 70 percent tariff on ethanol into China. That shuts us out of that market.”

“Agricultural trade is a long game,” Kessler said. “When prices aren’t where we want them to be, it’s tempting to look at the picture now. Farmers aren’t in it just for this year, they have to look five, 10, 30, 40 years into the future. What’s the big picture of my profitability now versus the big picture over the long-term. And that’s why investments in market development and policy are so important. That all goes hand in hand.”

When Vinduska talks to his neighbors about why trade is so critical to comprehend, he explains it like this.

“I ask them, ‘where are your yields going to be in five to 10 years?’” he explained. “And they say they’ll probably produce more. So then I ask them at what price level do they need to see to be profitable compared to today? And they say they must have higher prices to survive.

“Well, where’s the demand to come from?” he asked. “It’s not from Americans eating more bread, beef, chicken or hogs. We have to go outside our borders for sales. We have to stop thinking about this as a Kansas market where my corn competes with corn from the next county. We are competing on a world market. My competition is the corn farmer in Argentina, or the soybean farmer in Brazil, or the wheat farmer in the former Soviet Union. We’re all after the same markets and the same buyers.

“The U.S. Grains Council has a one sentence tagline that sums this situation up,” Vinduska added. “When trade works, the world wins.”

But what’s perceived as “winning?” Well that depends on who is answering the question.

Jennifer M. Latzke can be reached at 620-227-1807 or [email protected].