Foreign crop farmers may help rescue US poultry profitability
Foreign crop farmers' response to a 200% increase in the price of corn is having a predictable effect on total world production.
The price of corn shot up from $2 to $6 per bushel in the last decade after our friends in Washington – in both political parties – mandated that the use of corn for ethanol increase from 1 billion to 5 billion bushels. As a result, the U.S. poultry industry was invited to fork over $24 billion, so far, to our dear friends, the crop farmers.
The cash drain caused the largest chicken company in the land (in 2008) to close plants, go bankrupt and be sold to our friends, the Brazilians. The turmoil of closing plants kicked over a hornets’ nest of lawsuits brought by our friends, the lawyers.
Piling on, our friends in Russia and China, previously our largest export markets, decided to ban or eliminate imports from the U.S. Meanwhile, our friends on Wall Street nearly bankrupted the entire financial system, and millions of people lost their jobs. As a result, the unemployed are no longer eating as much deboned breast meat, particularly that product sold in foodservice. Sometimes you just wonder about certain friends.
Growth in corn for ethanol slowing
After a decade of sometimes overbearing friends, there are two bits of good news to report on the grain front. First, the increase in the mandated use of corn to make ethanol is slowing down. A good crop next year will bring down the percentage of ethanol minus by-product as a percentage of the U.S. corn crop. A decrease of any size in the percentage of the crop going into ethanol is a welcome relief from the rapid increases of the last decade.
World corn production on the rise
The second piece of good news is the textbook response of crop farmers in the rest of the world. The stimulus of a 200% increase in price is having a predictable effect on total world corn production.
In crop year 2000-01, the production of corn outside the U.S. was less than 340 million metric tons, while production inside the U.S. was 250 MMT. The U.S. dominated world production with a 42% market share. Next year, corn production outside the U.S. is likely to reach 600 MMT, while production inside the U.S. will be 350 MMT. The U.S. market share is now 37% and dropping.
In just two years, production in the rest of the world increased 100 MMT. The eventual impact on the world price of corn is predictable but might come as a surprise to some of our dear crop farming friends.