Pushing Yield 40% in 10 Years: Demand Will Never Keep Up

I recently read an advertisement from Pioneer Hi-Bred, which said their research, was pointing toward increasing corn and soybean yields 40% within 10 years.  When I read that I was quite struck by the breadth of that claim.  Does that mean in 10 years the 2009/10 US corn crop of 12.955 billion bushels will turn into 18.193 billion bushels?  Does it mean the 2009/10 US soybean crop of 3.245 billion bushels will turn into 4.543 billion bushels by the year 2019?

It was quite a claim but who am I to say they are wrong.  I cannot see that happening for soybeans simply because it seems in southwestern Ontario yields go down every year.  Corn on the other hand is a different story and the yield horizon almost seems endless.

Of course the question I have is what about the demand for all this grain.  For instance I have often talked about the huge demand for corn this year in North America. For this crop year the US is projecting usage of slightly over 13 billion bushels with production not quite keeping up with that. My question is will we ever see the day where that demand figure will push 18 billion bushels?

I think you know what I’m getting at here.  This time of year combines are being tuned up and people like myself have just got back from a plot tour.  At these plot tours we learn about new hybrids and new soybean varieties, which constantly challenge the yield frontier.  Of course the Pioneer claim puts it in perspective.  It is all truly believable but at the same time what does it really mean for farmers.  We might be getting 300 bushel/acre but how much will it cost to produce that acre and getting used to $2.00 corn again will not be good for the soul.

The problem I see is the demand side of the equation will not keep up to the increased supply provided by our genetic researchers who constantly challenged the yield paradigm.  I will agree with you that I have a small mind not being able to think about an 18 billion bushel demand for corn. The question I have where’s that going to come from and does it mean in lieu of some fantastic demand discovery we’re going back to very low prices for a long time.

In my last market commentary for the Ontario Corn Producers Association I’m mused about the chronic condition of corn demand in the feed industry throughout Ontario.  Of course what sticks out in the Ontario and Canada situation is the rationalization in hogs.  What we have seen is a 25 million bushel decrease in Ontario feed demand over the period of the last four years.  Multiplying that out over all of North America with a projection for the hog sector to get even smaller the impact on feed demand is huge.  It makes that 18 billion bushel corn supply seen even bigger.

Keep in mind it’s important to remember that agriculture has always relied on new technology to push the yield paradigm.  For instance grandpa might have got four dollars for his corn in 1947 but he only got 40 bushels per acre.  He put it in the snow fence crib and the rats ate what they could all winter.  So we all know the rest of the story.  Hybrids got better and so did storage facilities and the whole production process got more efficient.  It was creaky at best but it did work as long as you kept up with technology.  Supply and demand always had an uneasy marriage but farmers managed to survive by getting a sharper and sharper pencil.

In many ways I think this is changing forever.  Let me put it this way. With the advent of biotechnology and the increased speed of information technology, the yield increasing genetics of corn have increased exponentially.  In other words the rate of change to the corn supply is accelerating rapidly.  People who sell corn seed think this is a great idea.  They have funny new names like Smartstax and AcreMax and who knows what else.  Simply put I believe it all represents quantum leaps in yield.  You bet I’ll be on the bandwagon by buying some of that seed myself.  The problem is there is no quantum leap in demand in my projection.  In fact there may be a decrease. The implications of that going forward could be very ominous.

The implication is a world where feed grains and oil seeds grow into tremendous surplus.  There will be more people in the world to feed but after several trips to Asia I know not everybody will be part of that.  It may also change the agricultural policy world, actively increasing the subsidization of grain as farmers clamour to survive in the low-price world.  There will be no way for any grain balance sheet to show the type of increases in industrial demand and feed seed and residual to use up the projected surpluses.

Mother nature always has a way of hitting us over the head when we talk about surplus upon surplus.  Needless to say as I look ahead that seems to be changing to some extent. Seed companies almost as a rite of passage now show you corn that is grown in the field under glass without moisture.  So the playing field seems to be changing forever.

I have a saying that goes like this.  When it comes to my crops, it’s not about technology; it’s all about yield.  I still believe that but it’s becoming increasingly obvious.  If our seed companies are serious about increasing yields like they say they are, our whole world is changing before our eyes.  40% increase in 10 years?  If I were a betting man I’d put money on it.  The question is can our agricultural world handle all the implications from it?  I don’t think so.  The adjustments moving forward surely will be a challenge.