Have U.S. corn farmers lost their edge?

For the first time on record, U.S. farmers have fallen out of the top two-yielding corn and soybean producers in the world after drought conditions dented production of both crops.

The USDA says 2012-13 corn yields in Argentina and Canada will both top the 123.4 bushels an acre averaged in the U.S., while soybean growers in Argentina, Brazil and Canada are also expected to yield more per acre than their U.S. counterparts.

In view of this shakeup in yield rankings, it might be tempting to think that the crop production playing field has levelled off, and that American growers must get used to being outperformed. But a closer look at the performance of top U.S. producers reveals that the best American growers still outstrip competitors by a wide margin, and that it is the second-tier corn farmers who give the impression that America’s status as the world’s premier corn grower is waning.

A quick glance at a chart of corn yields in the world’s top 10 producing countries reveals that technology and improved land management have contributed to steep advances in the corn yields of countries such as Argentina and Ukraine in recent years. At the same time, it is also clear American corn yields have struggled over the past decade.

But such a view overlooks the significant impact that lower-tier U.S. farmers have had on the overall American corn yield in recent years.

Last year’s drought was clearly the most direct factor behind the steep yield drop seen in 2012, but it is clear from the flattening in the slope of the national yield over the past decade that last year’s yield dip was far from a one-off phenomenon.

A major driver of this overall yield drag has been the huge swell in acreage outside of the top producing states that have been converted to corn production from other crops.

Between 2002 and 2012, the total area dedicated to corn production in the U.S. increased by 23 per cent, while total U.S. corn production swelled by more than 30 per cent (using a 2008-12 average for production).

Yet the average yield for the country in 2012 dropped by more than six bushels an acre compared with the 2002 average yield. A close look at where most of the additional acreage has been deployed reveals why yield drag has been such a problem.

Over the last decade, the top five corn-producing states (Iowa, Illinois, Nebraska, Minnesota and Indiana) increased acreage by 17.4 per cent, while plantings in the next five (South Dakota, Kansas, Ohio, Wisconsin and Missouri) grew by 30.5 per cent.

Yields simply aren’t as good in this second tier, and tend to fall dramatically when growing conditions are poor, as they were in 2012.

As a result of the growing proportion of corn acres located outside of the top producing states, the overall national corn yield has strong upside potential if and when farmers in those second-tier producing states opt to switch to other crops.

And that’s likely to happen at some point because expected returns for growing corn on Tier 1 versus Tier 2 land is dramatically different. Farmers in Iowa, for instance, can routinely pencil in a 185-bushels-per-acre corn yield as a starting point, while their counterparts in Kansas are highly unlikely to see a corn yield average of more than 145 bushels an acre.

If corn prices drop, farmers located outside of the very top corn-producing areas will likely favour other crops, boosting the average national yield and restoring the U.S. as the top-yielding corn grower on the planet.

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