“Increased raw material prices because of the problems caused by the Covid 19 pandemic in the supply process in 2020, export restrictions and due to some other factors had a significant impact on both livestock farmers and the feed industry. However, when we ignore such unpredictable factors, the main determining factor in grain prices is the amount of demand and production in the world. Recent reports announced by international organizations show that, unfortunately, the supply-demand balance cannot be achieved in the next season, either.”
By Bahadır Büyükkılıç
The type and amount of grains used as feed raw material in animal feed depends largely on the nutritional value and costs. Although the primary grain type preferred in different regions varies, corn is the most commonly used in feeds produced for many different animal species, especially the poultry group. Corn, which is an important energy source for animals, is also used in the food industry such as oil, starch, and flour, and by-products from these industries are also considered as important components for the feed industry.
In the feed and livestock industry, the composition and properties of the coarse are as important as the price in the selection of the grain as a feed component. Increased raw material prices because of the problems caused by the Covid 19 pandemic in the supply process in 2020, export restrictions and due to some other factors had a significant impact on both livestock farmers and the feed industry. However, when we ignore such unpredictable factors, the main determining factor in grain prices is the amount of demand and production in the world.
CURRENT PRODUCTION & CONSUMPTION DATA
Production yield of the past years, predictions for the last season, and forecasts for the next season indicate that there will be a slight increase in world corn production, but this increase will not be sufficient.
In its latest report published in January, the International Grain Council (IGC) stated that the world corn production, which was 1,129 million tons in the 2018/19 season, decreased slightly in the 2019/20 season, and was estimated to be 1,124 million tons. However, the increase expectation for the 2020/21 season still continues. The latest forecast made by the IGC is that the production will be 1,133 million tons in the current season. Likewise, the US Department of Agriculture (USDA) Foreign Agricultural Service’s January report also supports the increase expectation. Unlike the IGC, the USDA forecasted 1,116 million tons for the 2019/20 season, and the same amount (1,133 million tons) as IGC for the 2020/21 season.
Here, the main point is that the increase in production is not enough to meet the demand for maize. According to IGC data, world corn consumption, which was 1,147 million tons in the 2018/19 season, reached 1,153 million tons in the 2019/20 season. This means 29 thousand tons more consumption than the production amount in the same period. Likewise, forecasts for the 2020/21 season indicate that the consumption will be higher than the production (28 thousand tons) with 1,161 million tons. In the USDA report, the total consumption estimated for the 2019/20 season is 1,133 million tons and the estimated consumption amount for the 2020/21 season is 1,153 million tons. The difference is around 20 million tons.
The difference between production and consumption means that existing stocks, which declined each year, continues to fall further. The table in question indicates that corn prices will not be at a level that will satisfy the producer in the coming period. Rising prices since the World Agricultural Supply and Demand Estimates (WASDE) report published in December also support this.
In world corn production, USA ranks first with 345,9 million tons in the 2019/20 season. The USA is expected to increase its production to 360 million tons in the next season. China follows the USA with 260 million tons. Production in China is expected to remain at almost the same levels in the new season. Brazil is the third largest producer in the world with 102 million tons. Production in the country is expected to reach 109 million tons in the new season. Brazil is followed by the European Union with 63.7 million tons, by Argentina with 51 million tons and by Ukraine with 35.8 million tons. It is predicted that there will be a decrease of 6 million tons in production in Ukraine, which is also an important exporter, in the coming period. This expectation started to show itself also in corn prices. The largest producers, the USA, China, the European Union and Brazil, continue to rank at the top in consumption, too.
HIGHLIGHTS IN WORLD CORN TRADE
According to the IGC report, the world corn trade, which was 165 million tons in the 2018/19 season, reached 174 million tons in the 2019/20 season. IGC expects the trade volume to increase to 183 million tons in the 2020/21 season. The USDA’s January report draws a similar picture and predicts that the trade volume, which was 175 million tons in the 2019/20 season, will be around 181 million tons in the 2020/21 season.
The ranking of the leading countries in international corn trade did not change much compared to previous years. The USA, Brazil, Argentina and Ukraine are still the leaders in exports. The USA, which exported 46.9 million tons last season, is expected to reach a record increase (64 million tons) in the next season. In the same period, it is predicted that Brazil will export 40 million tons, Argentina will export 31.5 million tons and Ukraine will export 24 million tons.
But, on the import side, the European Union and countries such as China, Mexico, Japan, South Korea, Vietnam and Egypt stand out. Although it ranks first in world corn imports, a slight decrease is expected in the import demand of the European Union. On the other hand, the rising demand in China changed the balances in the whole maize market. It is predicted that China, which imported between 4 and 8 million tons in previous seasons, will almost double this amount (17.5 million tons) in the 2020/21 season. This demand is shown as the most important reason for the record export expectation in the USA. Another reason for the high expectation in the USA is the declining production and export volumes of Ukraine. In addition, in Argentina, which is an important exporter, exports were suspended temporarily in order to reduce the food inflation in the country, and the export amount was bound to a quota with a later decision. However, this confusion and uncertainty in the country continues to affect the market.
PROGRESS OF CORN PRICES AROUND THE WORLD
Since the WASDE report published in December, offers for corn exports have increased. According to the USDA report, this increase was driven by rising soy prices in South Africa and concerns about the supply process.
Argentina increased its corn offer price by $27/ton to $254, while Brazil increased its offer price by $29/ton to $264, due to ongoing supply problems. Due to the high demand from China, prices in the Black Sea reached $240 with an increase of 22 dollars/ton. Among the major exporters, the lowest price is from the US, with $240. However, prices increased by $22/ton there as well.
In short, since the beginning of January, the prices of exporters have changed between $240 and $260/ton. This is stated to be the highest since the summer of 2013.
References:
• International Grains Council (IGC), Grain Market Report, 14/01/2021, https://www.igc.int/
• United States Department of Agriculture Foreign Agricultural Service (USDA), Grain: World Markets and Trade Report, January 12, 2021, https://www.fas.usda.gov/
• Animal feed resources information system, Feedipedia, https://www.feedipedia.org/
