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Global grain production to hit new record

The corn market jumped the limit on USDA’s quarterly supplies report, which says U.S. corn stocks are their lowest since 2004. A day or two earlier, I saw a report saying global grain production is expected to reach a record high.
By Susanne Retka Schill | October 01, 2012

More news on the grain supply front came this week. The corn market jumped the limit on USDA’s quarterly supplies report, which says U.S. corn stocks are their lowest since 2004. A day or two earlier, though, I saw a report from the Worldwatch Institute saying global grain production is expected to reach a record high of 2.4 billion tons in 2012, an increase of 1 percent from 2011. The news release cited the U.N. Food and Agriculture organization’s numbers for global growth: grain for direct human consumption grew 1.1 percent from 2011 while the production of grain for animal feed is growing the fastest at 2.1 percent over 2011.

Note that the growth in global grain production is increasing, in spite of more-extreme climatic events, such as the drought in the U.S. Great Plains. The Worldwatch news release said the decrease in U.S. corn production is expected to be 13 percent down from 2011, for a total production of 274.3 million tons. Elsewhere, I saw a statistic that only 1 percent of that goes directly to human food, primarily sweeteners. The rest goes to feed, ethanol production, exports and  a small amount for seed. Globally, the FAO expects corn production to increase 4.1 percent from 2011, reaching an estimate of 916 million tons in 2012. Looking at these numbers, the U.S. corn crop is less than one-third of the global corn crop.

The nonprofit said the total amount of grain used globally for food totaled 571 million tons, “with India consuming 89 million tons, China 87 million tons and the United States 28 million tons, according to the International Grains Council.”  Note that global grain production is forecast to be 2.4 billion tons, so direct food use is about one-quarter.

Quoting again from the news release: "The relationship between food security, grain production and climate change is especially important in 2012," said Nierenberg, a Worldwatch senior researcher and Nourishing the Planet project director. "The recent drought affecting the United States and the rest of the world show the need to reduce price volatility, move away from fossil fuel-based agriculture and recognize the importance of women farmers to increase resilience to climate change."

There’s a big challenge there. How do we reduce price volatility? The grain market is sort of a classic inelastic market. Very small shortages and surpluses cause wide price swings. Here we are, facing a global increase in corn production forecast at 4 percent. The USDA numbers still put the U.S. corn crop at the 8th largest. Yet, the worst drought in 50 years put the U.S. markets into wild weather mode. That is, speculators dove in to play the market and drive corn prices well past the 2008 market highs. Ironically, that weather-crazed market, if I recall correctly, happened after record rains and flooding that came on top of global concerns about drought-reduced wheat production. That weather market was much shorter-lived.

I have no answers, only questions. How can the U.S. market be so high when globally, there is record grain production forecast, including an increase in corn production? Many would argue that speculators play an important role in the market, but shouldn’t there be some recognition that speculation sometime defies reality? While many are justifiably concerned about the impact of higher grains prices, particularly on livestock feeders, one benefit of those higher prices is that it is stimulating investment in agriculture. Isn’t that a good thing?