The African Corn Crop Is Failing

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Travel to parts of the United States and you may hear farmers discussing the so-called "War on Corn", often involving a repeal of the corn subsidies that have made the crop into America's most widely-grown produce.  Corn has a long way to go in the United States before it is in trouble, however, as we grow no less than 40% of the world's total crop on nearly half a million farms across the country and export more corn than Brazil and Argentina combined.  What's been the greatest success story in the history of our nation's agriculture hasn't always translated to other parts of the world, however.  The situation for corn in Africa has reached perilous levels, where a combination of factors have truly resulted in a War on Corn to the point where the continent's overall production may fall by as much as a third.  This makes corn a hugely valuable commodity as the agricultural needs of over a billion persons and their livestock suddenly face a critical shortage with the urgent need to snap up supply from overseas.

From Here To There

Corn landed on African shores after the European colonization of North America introduced a variety of new markets to one another and permitted the exchange of goods across oceans and land.  Since much of sub-Saharan Africa has little need for corn as livestock feed due to the abundance of excellent grazing space (case in point, giant herds of wildebeest and zebra), corn only caught on in African agriculture as a staple food once human populations soared during the 20th century.  Corn grew easily and quickly in the African soil due to the abundance of sunlight and the relative hardiness of the plant.  Africa quickly became agriculturally self-sufficient on the back of rapid corn growth; of the top 35 nations in corn imports, the only African nations lie north of the Sahara, where desert environments necessitate broad, large scale agriculture imports.  Some central African nations, most notably Zambia, run a corn surplus that allows them to capitalize on trade with neighbors and the EU.  Zambia's ability to export corn, the nation's second-largest export after copper, has been limited throughout 2015 due to a confluence of factors, most importantly a weather phenomenon known as Bergwind that has drastically limited central and south African agriculture.  While many foodstuffs have faced shortages thanks to the 2015 Bergwind, none have been hit so hard as corn.

Drying Up The Harvest

While we think of corn as a famously tough crop, capable of withstanding wind and intense sun on the Iowa and Nebraska prairies, no plant can withstand heat waves in conjunction with drought for long.  The Bergwind weather phenomenon strikes the African savannah whenever low pressure fronts from the surrounding Atlantic and Indian oceans come into contact with higher-pressure fronts on the mainland.  The pressure imbalance pushes clouds further out away from the land to dump their beneficial rains back into the ocean, leaving the land high and dry.  Lack of rain clouds not only fail to deliver precipitation but fail to cool the region overall, resulting in heatwaves that mercilessly pound the continent until seaborne wind can build up enough force to push clouds back into the high-pressure region.  The 2015 Bergwind hit central Africa particularly hard, making many nations like Tanzania, Kenya, and Zambia suffer the consequences of adverse weather.  These savannah nations rely heavily on corn for both livestock feed and food, meaning that the nation's farmers will face shortages with the likelihood of mass importation of corn or other feed crops. 

The Extent Of The Damage

Even if Africa doesn't contribute nearly as much to the global corn trade as the US, the heat wave's impact on corn will resonate throughout the global commodities market.  South Africa's Crop Estimates Committee believes a full third of their country's corn crop has failed.  South Africa's 9-million-ton harvest represents the smallest quantity of corn headed to the market since 2007, with early estimates that the local price of white corn will jump by nearly 25%.  Yellow corn, a traditional feed crop for livestock, has been a bit hardier than the white corn sold for human consumption, but nevertheless will decline on the magnitude of some five million tons.  The Johannesburg Futures Exchange further saw the quantity of soybeans, sunflowers, sorghum, and groundnuts decline by as much as one million tons each.  The news is particularly unpleasant since South Africa had a record harvest in 2014, with more crop surpluses than any time in the past three decades, and because the country's mining output has absolutely been hammered by a series of strikes and energy shortages.

Corn: Looking Up

The past month alone has been excellent for corn investors.  While corn had a downright dreadful 2013 and 2014, sinking from $329 per metric ton to just $170 per metric ton, that figure has grown by ten percent in the past month and now trades for $188 per metric ton today.  An African shortage of maize means good things for agricultural investors looking for a new investment at a time when bumper crops around the globe have driven down the cost of staples like soybeans and wheat.  With the end of the summer harvest just two months away, furthermore, corn appears to be ready to rise all throughout the rest of 2015 on the back of global uncertainty and shortages.  Difficulties in predicting weather make corn's future in 2016 uncertain: investors should take steps to consider corn a short term investment rather than a long term growth engine due to the likelihood of a stronger crop next year.

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