Grain supply side macroeconomics are shifting
Brian Burke, president of John Stewart & Associates, spoke to attendees at the Annual Four Star Pork Industry Conference held in Muncie, Indiana in September 2024. Burke consults and advises managers on commodity risk across the wide variety of agricultural businesses. John Stewart and Associates works with grain elevators, livestock operations, feed operations, biofuels and plants and producers.
Burke’s message to attendees focused on production shifts around the world, highlighting how US corn and soybean exports have shifted from whole grains to value-added products and how Brazil has replaced the US in whole grain exports.
Global production shifts
The acreage base in the US is shrinking and has been shrinking for the last 20 years, according to Burke. Looking at principal crops like corn, soybeans, wheat and sorghum, the US has been losing about 400,000 acres per year on average over the last 20 years.
“We are losing those acres every year to urbanization first and foremost, and then you have a myriad of other things taking away production like solar fields,” he said. “But as we continue to concentrate production, our offset to that lost acreage has been increased yield.”
When comparing that to South American production, this is where the big shift is occurring and has been evolving for years. But now the accelerated pace of evolution is becoming important, according to Burke.
Mato Grasso is the largest agricultural producing state in Brazil. For context, you can fit the state of Indiana inside it 9.6 times, indicating just how big the agricultural producing region is in Brazil.
“When we look at the expansion happening in South America, each year it’s kind of hard to see and feel the difference, but when you look back over the last 10 to 15 years, you can see the magnitude of the change,” he said. “On a 10-year trend in corn production, we’ve seen a 103% increase in Argentina, and we’ve seen a 39% increase in Brazil.”
Brazil’s core crop is soybeans followed by corn as a second crop. Burke said production trends show 78% more corn production in Argentina, noting their yield curve is not as high as the US. In Brazil, there’s been a 61% increase in corn production over the last 10 years. Burke expects these production and acreage trends will continue.
“When we think about the big picture macroeconomics of global consumption and global calories, you start thinking about GDP, population growth, caloric intake. What we have seen as third-world countries migrate up the food chain, quite literally, as far as how their caloric intake change, that has continued to drive demand for all these products – grain products, vegetable oil, meals, etc.,” he said. “There is an engine of growth throughout the world, but that engine of growth is not keeping pace with its production potential that we’ve seen coming out of South America and the United States yield curve combined. And the trend of more production coming out of South America is really undeniable.”
Looking back at the 1970s to 1990s, the US was considered the king of corn and soybean exports and one of the top three exporters of wheat. In the 1980s and 1990s, 80% of the world bought whole corn from the US, and today that is just under 30% and it’s very similar for soybeans, having been at 90% in the 1980s to now at under 30%.
The world is buying more. Population growth and caloric intake growth are driving more imports of corn. And it’s South America who is capturing that growth.
“In the late 1980s, the US exported over 2 billion bushels, and two billion bushels is still a pretty good year for the United States. We’ve been flat, while South America is expanding,” he said. “From a policy standpoint and infrastructure standpoint, the driving force behind it, in particular Brazil, is to export whole grains. One of the shifts that’s occurring in the US from a macroeconomic agricultural perspective is the focus of US exports shifting to more value-added products and away from lower value whole grain type products.”
Thus, the US is evolving to export more ethanol, we’re evolving to export more renewable diesel, we’re evolving to export, recently, more soybean meal and frozen meats. We’re exporting more value-added products, which is not a bad thing, and Brazil is taking the mantle on exporting whole grains, he says.
“I talk to grain elevators, cooperatives and agriculture processing companies and my main focus for them is where do you allocate capital?” he said. “Where do you want to spend your money? Are you going to spend your money on a large shuttle loader or more storage? If you want to spend your money on ports, it better be on exporting something that’s not whole grains. The driver of export growth is not whole grains in this country, and I don’t think it will be anytime soon.”
The dramatic increase in global soybean exports (red line) is impressive, and it’s driven by China. The green line shows that Brazil and South American markets are capitalizing on the growth coming from China and the US (blue line) has seen a very modest increase in soybean exports over the last 20 years.
What’s driven the change in US exports?
“We’re going to have 17 billion bushels of corn in this country this fall, and that’s more than we’ve ever had before,” he said. “For corn it’s easy because it’s already kind of happened. It was ethanol – we took a billion-bushel ethanol industry in the late 90’s and turned it into a 5.8-billion-bushel business in about 15 years. And we’re in the process of doing something similar on soybeans.”
Another driver is the growth that’s seen in Brazilian ports and infrastructure. There’s been an explosion of exports in grains out of South America, in particular Brazil, and they must have the infrastructure to export all that grain.
“Brazil has built nearly as many docks to load grain ships in the last 15 years than the US has grain docks to load ships in total. They’ve been built along the coast
and most of the expansion is in the north, what they call the Northern Arc. For example, Itaqui is a new port, and they can load five to six ships with grain at the same time. We have nothing like that in the US – we have two grain export terminals that can load two vessels at a time out of New Orleans. All others are limited to one vessel at a time on the dock.”
The Amazon River is a very deep-water river, and he said most of the new ports being built today are being built up the Amazon to get closer to the grain production. Burke highlighted a new port in Santarem that’s about 450 to 500 miles up the Amazon River, noting that would be the equivalent to the US loading vessels in Memphis if you run up the Mississippi River.
“Their expansion is dramatic and their ability to supply the world in the whole grain market is increasing,” he said. “It is increasing at a pace that is faster than the steady population, GDP and calorie-type expected growth. We need for the US to continue to invest in value-added production of agricultural goods and services given the headwind in production from South America.”
Burke said he started working at ADM in the mid-1990s. During this time there were several more companies utilizing river barge assets to feed the New Orleans export hub. Today, there are fewer companies and some of the barge terminals are only utilized seasonally. We certainly have periods of time when US exports are strong, but those moments in time are more determined by South America each year in the size of their local crops.
When speaking to grain clients and others in the industry, he said the view is that exports are important to our industry as they account for about 20% of corn whole grain production and 30% of soybeans. So, it’s not insignificant, but it’s not where the industry hangs its hat when it comes to US demand and especially growth. That’s going to depend on how we use corn and beans to develop value-added products.
Where’s the expansion in Brazil happening?
Brazil will continue to see expansion over the next 10 to 15 years. Burke says the area of crop expansion will occur in a region called the Cerrado. It’s considered the world’s largest savanna.
Per ABIOVE (Brazilian Association of Vegetable Oils Industries), there are three categories today that make up about 490 million acres of land – native areas, pastureland for cattle and regions of development for soybeans that will be followed by corn.
- 253 million acres is native vegetation and 89% of that is privately held
- 237 million acres is agricultural production and pasturelands
“Roughly half of the region is pasturelands and/or has already been converted into production of mostly soybeans and second crop corn,” he said. “There are 57 million acres of soybeans currently in production in Brazil, and the stated goal of Brazil is to double that in the next 10 years without converting native lands.”
To offer some perspective, the US grows about 85 million acres of soybeans. In the next 10 years in the Cerrado region of Brazil only, they want to add another 55 to 60 million acres of soybean production.
“That is more than the growth of what we see for caloric protein demand. Will they or will they not be able to achieve that? That will depend on price, and that has a lot to do with infrastructure,” he explained.
Brazil doesn’t have a big railroad system like the US due to the topography of the country. Brazil’s growing region suffers from sharp elevation changes making rail more difficult. We have all seen pictures of the long truck lines throughout Brazil during harvest. That will likely persist, but there will continue to be investments in river and barge infrastructure the further north you go.
“From a net return per acre standpoint, Brazil produces soybeans as good or better than the US,” he said. “Their trendline yields are the same. Their technology and genetics are the same. Brazil’s land costs are cheaper. Their fertilizer input costs are similar, but their transportation costs are much higher. When you look at a comparison between an Indiana farmer and a Brazilian farmer, the soybean economics are roughly the same.”
The kicker in South America is the second crop of corn that comes behind the primary crop. Their corn crop becomes a bonus crop, similar to a second crop of soybeans that follows a soft winter wheat crop in the US.
“Brazil does have a storage problem, and they have a logistics problem. They have grown production of corn and beans combined, 82% percent since 2010,” he said. “Their storage capacity has only increased 35% at that same time. So that’s where a lot of capital investment is being made in grain agriculture, it’s in the infrastructure of Brazil.”
