HIGH AND TIGHT
By Nancy Jorgensen

Growing global corn and soybean demand translates into a bright decade ahead for growers, but world leaders fret

Every day we hear from the news media about how biofuels production has jacked up commodity prices. But the cause of price jumps goes beyond biofuels. The world continues to demand more corn and soybeans as growing populations in developing nations seek out more protein. The good news for Midwest growers: Greater demand should lead to continued high commodity prices.

"We’ve seen robust economic growth on every continent in the last decade," said Chris Corry, senior director of international operations for the Washington, D.C.-based U.S. Grain Council, which works to expand markets for U.S. corn.

According to Corry, research shows that when people make less than a dollar a day, they don’t buy meat, but when they make between $1 and $2, their protein intake goes up. "Corn doesn’t feed poor people; mainly wheat and rice feed the poor. But when they’re able to buy meat, milk and eggs, those products all stimulate increased corn demand." They also stimulate demand for soybeans, also used to feed livestock.

In June, the world’s population stood at almost seven billion, and it’s expected to rise to nine billion by 2050, according to the U.S. Census Bureau. USDA’s Interagency Agricultural Projections Committee recently reported that China and India together account for one-third of the world’s population, and they’re also among the fastest-growing economies in the world. Currently, China and India grow all the corn they need for feed, but many experts believe that’s changing.

Gary Marshall, CEO of the Missouri Corn Growers Association in Jefferson City, keeps a close watch on global demand. "The U.S. is the world’s leading corn exporter," he said. "I expect that to continue and demand to expand with China and India coming on board needing feed grains. Assuming governments allow free trade, we are the low-cost corn producer in the world." Marshall sits on the board of directors of the U.S. Grains Council.

William Meyers, co-director of the Food and Agricultural Policy Research Institute at the University of Missouri in Columbia, said that, in recent years, wheat and coarse grain consumption has grown slightly faster than production, so stocks have been declining. Similar pressures hit soybean supplies when U.S. farmers shifted some acreage from soybeans to corn in 2007.

"FAPRI projects continued feed demand growth for corn and other coarse grains over the next decade, with the largest growth in Asia, which also has the strongest sustained income growth," Meyers said, "This combines with strong U.S. demand for corn as a biofuel feedstock."

FAPRI also projects sustained growth in soybean markets. "The strongest is in China, which has rapid demand growth for both human and feed uses of soybean products," Meyers said. "Their own production is not expected to grow very rapidly."

Missouri does its part

Corn is America’s top crop, and Missouri farmers did their part in 2007, producing 461 million bushels on 3.2 million acres. Soybean acreage planted dropped from 2006, probably due to increased corn plantings, but Missouri farmers still plant more soybean acres than any other crop. Last year, they harvested 168 million bushels of soybeans on 4.5 million acres.

Growing demand will likely result in grain and soybean prices remaining high compared with the last decade, Meyers said. "It means higher prices, net returns and incomes for crop producers in general and higher feed prices and lower returns and incomes for livestock producers."

Agricultural exports remain a bright spot in the U.S. balance of trade, and the decline of the dollar is expected to continue to fuel export sales. In May, USDA reported that in 2007, U.S. agricultural exports were worth $82 billion, and for 2008 this was expected to rise to a record $101 billion.

U.S. producers of wheat, soybeans, and corn depend on trade. "Exports account for close to half the volume of wheat production, more than a third for soybeans, and almost a fifth for corn," according to a November 2006 article in Amber Waves, published by USDA’s Economic Research Service. Livestock’s export share runs much lower, since most meat and dairy products are consumed domestically, and disease outbreaks and related trade restrictions continue to constrain animal-product exports.

Can we deliver?

As demand grows, will U.S. and global supplies fill the gap? Corry offers a positive view. "We will see a worldwide increase in corn plantings, and people are also looking for substitutes," he said. For example, dairy rations in Morocco may come from dried distillers’ grains (DDG), a by-product of ethanol production. "The U.S. is basically the only supplier of DDG, and the council is working on all cylinders to open markets for this product." The organization is running feed demonstrations in places like Japan, Egypt and the Philippines.

Meyers pointed out that many countries are unable to keep up with the growing needs of their people. Farmers in developing nations struggle to modernize and increase production. "Investment in agricultural research and agricultural extension has been lagging during the last decade," Meyers said. "High prices create problems for these countries, but also create incentives to invest more in agriculture."

Corry adds other reasons why developing nations can’t keep up. Most of Africa has been experiencing a drought. Countries like China and India feature a lot of small landholdings, and don’t have the economy of scale needed to benefit from mechanization. Still, he expects Asia to use biotech seeds to boost production.

In the end, Marshall, Corry and Meyers believe that the world’s farmers can provide all the food needed to meet global demand. "We don’t have a food shortage problem—we have a food delivery problem," Corry said. In many developing nations, road conditions prevent the timely delivery of food to market. He also blames an aging shipping fleet, where a lot of old ships are being retired.

According to Marshall, import duties imposed by some countries put up further barriers, and food delivery issues can often be traced to government intervention. "Myanmar is a great example," he said, referring to that government’s reluctance to allow food waiting on ships to be delivered to typhoon victims. "We can feed the world, but governments must help."

In 2007, the U.S. Consumer Price Index for food rose by four percent. But how much of that increase can be linked to higher commodity prices?

Joseph Glauber, USDA’s chief economist, downplayed prices received by farmers in an appearance before Congress in May. "Higher commodity prices are contributing to the increase in food price inflation, even though, on average, the farm value accounts for only about 20 cents of each dollar spent on food," he said. "For highly processed foods, such as cereal and bakery products, the farm component of the retail value is less as processing costs account for a higher portion of the retail value."

Glauber attributed much of the spike in food prices to economic growth in the U.S. and abroad, weather conditions, energy prices, export restrictions, and new markets for alternative fuels.

Closer to home, Gary Marshall, CEO of the Missouri Corn Growers Association, agrees that agriculture, especially biofuels production, has been the target of undue criticism as food prices have risen.

"We’ve been blamed for food riots in Haiti when they’ve never purchased U.S. corn—we give it to them," Marshall said. "We’ve been blamed for tortilla prices in Mexico when it was the Mexican government that limited white corn going into their country. Today, we’re even blamed for movie popcorn prices when popcorn has not lost acres in the U.S. to biofuels or anything else."

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