One of South Dakota Corn’s major industry partners is the U.S. Grains Council, an organization that consists of corn, sorghum and barley producers and agribusiness organizations. The council develops and expands export markets and promotes trade globally. In addition to corn, sorghum and barley, exported products include ethanol, distillers grains and other co-products. The council operates programs in more than 50 countries and has 28 full-time offices.
Nearly one-third of the corn harvested in South Dakota is exported, making the Grains Council a valuable partner.
The council held its 60th annual board of delegates meeting last week to discuss progress, challenges and opportunities and to plan for the months ahead. South Dakota Corn board and staff members participated in the meeting, which was held virtually rather than in person because of COVID-19.
Although COVID-19 has slowed exports this year, Grains Council Chairman Darren Armstrong said there have been bright spots. The current marketing year’s top five markets for U.S. corn are Mexico, Japan, Colombia, South Korea and China, in that order. China is a bright spot at 84 million bushels this year – nearly 4½ times as much as it purchased all of last year (18.7 million bushels). In new crop corn, China is the top buyer so far, including its biggest single sale ever. Armstrong said that during this extraordinary time, U.S. farmers have never stopped working and neither has the Grains Council.
The meeting included reports from Grains Council representatives in overseas offices and presentations by a U.S.-China Business Council ambassador, an assistant U.S. Trade representative, an agricultural consultant and economists.
Here are just a few of the key points that were covered.
Ryan LeGrand, the council’s president and CEO, reported that although exports are down this year after a slow start because of the pandemic, the last half of the marketing year is seeing a real surge in sales and shipments.
It’s early in the marketing year, but “new-crop corn sales are currently double what they were at this time last year,” he said. A good share of the trade activity is with China, which recently made substantial purchases of corn and sorghum. In fact, China has purchased three times as much U.S. corn as it had purchased by this time last year.
Sales of dried distillers grains have climbed in Vietnam, one of the fastest-growing feed and food markets in the world. In addition, Vietnam has imported 221,000 metric tons of U.S. corn, compared to 65,000 MT by this same time last year.
Indonesia has been a strong purchaser of distillers grains and corn gluten meal and substantially increased its ethanol purchases after the United States Grain Council (USGC) and its ethanol partners convinced the country to eliminate a ban on blending ethanol into fuel. If Indonesia moves to an E10 policy, that would provide a potential ethanol market close to 1 billion gallons. Incidentally, that total is nearly as high as the amount South Dakota’s 16 ethanol plants have a capacity to produce annually.
Gains also have been made in Africa. One example is Egypt’s purchase of a vessel of U.S. corn for the first time in two years. The council is working on a project to prove U.S. corn has higher starch value than corn from other countries, which could open big opportunities with starch plants in various nations.
In a typical year, ethanol destined for industrial uses accounts for 25% of U.S. ethanol exports. In May, because of the pandemic, that total reached 50% as more ethanol was used to make sanitizer.
Rebounding from the downturn
David Kohl, professor emeritus of agricultural and applied economics at Virginia Tech University, addressed the COVID-19 pandemic and shared his views on what might lie ahead.
Kohl classified March 1 to May 1 as the first phase, a time of a consumer shutdown when consumer purchases dropped to 25% of normal and lower. “The global economy was put on life support,” he said.
The second stage started around May 1 and will go through the end of the year or maybe beyond. This phase will involve recovery plans nationally and globally and a realization of job losses. There will be business failures. Kohl said one thing to watch for is de-globalization. He said there have been seven decades of globalization.
Kohl expects a positive stage from January 2021 into 2022 and beyond. There will be a commitment to move forward. Certain parts of the economy – including schools, universities, sports, entertainment, hotels and travel – will operate at 50-75%. For others, such as Amazon and online buying, the economy will be at 125%.
Expect a “W” type of economic recovery – up and down, up and down.
Kohl warned that Russia and OPEC are likely to join forces to try “to take out our ethanol, fracking, solar and wind energy.”
He foresees some positive things for agriculture:
- Importance of diversified safe food, fiber and fuel sources – the basics of life
- Reassurance and transparency in where food is produced, processed and distributed
- Health of soil and water
- Niche markets in the U.S. and globally
- Repositioning of the image and importance of agriculture
Expect more Chinese purchases
Arlan Suderman, chief commodities economist with StoneX Group Inc., expanded on the agricultural economy, trade and commodity supplies.
He said the Coronavirus Food Assistance Program paid farmers to store grain longer, which means a lot of grain will need to be moved to make room for new crops. Much of the U.S. corn supply is used to produce ethanol but that use dropped drastically during a major reduction in travel and fuel consumption during the pandemic. Ethanol demand had been growing over time, but is slipping again as high-driving states are seeing a surge in COVID cases.
Suderman said as an economist he’s not as scared of coronavirus as he is about people’s response to coronavirus. “The biggest thing is the fear and how it alters consumer behavior,” he said.
Export markets, of course, are extremely important to the U.S. economy. Although a strong U.S. dollar is the biggest detriment to Chinese purchases of U.S. products, Suderman expects China to dramatically increase its purchases and shipments during the last half of this calendar year. China has taken a number of hits to its economy through swine fever, the Hong Kong uprise and coronavirus. “They need trade,” he said. “Their economy is based on trade.”
Globally, there is reportedly a 100-day supply of corn worldwide. If you remove China and the U.S., there is only a 35-day supply. Suderman said he believes the USDA’s estimate of China’s temporary reserve of corn is overstated. By his company’s calculations, China’s temporary reserve will be depleted by the end of August.
That would leave China with a policy decision to make: will it reduce demand, which would alter its support for its domestic starch and ethanol industries, or will it change its policy to increase domestic corn production. China has a lot of potential to increase production, but also faces a lot of obstacles.
“Look for stronger shipments of U.S. grain/oilseeds to China from August through December,” Suderman said.