US corn exports could increase by $200m a year by 2015, according to Rabobank analyst Will Sawyer, largely thanks to the expansion of the Panama Canal – due for completion in 2015.
The larger canal will enable carriers to increase grain capacity by 25%, resulting in lower transport costs from US Gulf ports and pushing the price per bushel of corn up to 25 cents.
“Panamax ships are defined as those with a draft of 39.5ft or less, but the new canal will accommodate ships with a draft of up to 50ft, or a load of up to 70,000 metric tonnes. In the long-term, this equates to a 12% fall in transport costs and will significantly increase the draw area west of the Mississippi river for exports through the canal via US Gulf ports,” Sawyer told Milling & Grains.
Currently, the draw area (west of the Mississippi river) has comparable costs through the Panama Canal or Pacific Northwest shipping regions. Any significant cost savings to either shipping zone is therefore hugely beneficial in terms of their competitiveness.
Export gateway and Asian demands
US Gulf ports are the main grain export gateway from the US corn belt (which includes Mississippi, Illinois and Minnesota). But over the past 15 years, as demand has increased from Asia, Gulf ports have missed out to competitors in the Pacific Northwest, Sawyer said.
However, the expansion programme could double the US Gulf draw area from the key grain producing states of Minnesota, Iowa and Missouri, increasing exports from 25% of annual corn production to 50%, he said. Major Gulf ports like New Orleans, Galveston and Corpus Christi are likely to see the biggest gains.
“Shipments through the US Gulf accounted for nearly 80% of US grain exports in the past, but due to demand growth in Asian markets and increased efficiency of the US Pacific Northwest, that share has since fallen to between 60% and 65%. Lower transport costs from the US Gulf generated by the Panama Canal expansion will help ports in the region regain some of this export while also improving the overall cost competitiveness of the US.”
Export boom?
The US is one of the largest grain exporters in the world, along with Brazil and Argentina, and the US Department of Agriculture (USDA) forecasts an increase in market share of corn exports to 45% over the next decade. This takes into account the effects of the canal expansion, but also the reprieve from the US ethanol mandate to help free up US corn supplies.
“If exports climb by 4.5% per annum as the USDA projects, export growth from the Gulf could rise at a significantly higher rate of 6% per year. This would imply a near doubling of US Gulf exports from the levels seen during the 2011/2012 crop year,” Sawyer said.