March 09, 2021

A Quick Glance At Investing In Corn

by Sara Wensley

Director, Growth and Marketing

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A Quick Glance At Investing In Corn
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Let's trace corn’s development as a crop from its very beginnings through to its present-day ubiquity, illustrating some of the reasons why we find it such a compelling row crop.

There is little argument over the status of corn as the US’ most significant commercial crop. Corn itself, as well as ingredients derived from corn, are used in a vast range of food products around the world, and also figure importantly as a source of livestock feed, raw material for biofuel production and even packaging. Globally, corn is the second-most significant crop after sugar cane in terms of total harvested tonnage, and second only to rice in terms of gross commercial value. It has been the most significant driver of the US agricultural sector’s ascension to its current status as a global superpower, supporting the diets and livelihoods of millions.

That said, a common misconception perhaps born of this economic dominance is that “all corn is the same”. In fact, the origin of corn as a crop and its journey through the development of human civilization is rich, fascinating, and extremely diverse. Knowing this story is important for anyone thinking of buying into American row cropland.

Below, we’ll trace corn’s development as a crop from its very beginnings through to its present-day ubiquity, illustrating some of the reasons why we find it such a compelling row crop.

Corn’s History and Ecological Origins

Though the US is today’s runaway leader in total harvest volume of corn, the roots of corn as a crop trace back to ancient civilizations in Central America. As long as 9,000 years ago, Mayan civilizations originally domesticated the crop plant we know of today, Zea mays, from a wild ancestor known commonly as Teosinte. Though physically bearing close resemblance with its modern descendants, Teosinte’s grains were encased in a hard outer shell that made them inedible - in fact, archeological evidence suggests that it wasn’t until ancient plant breeders noticed a mutation that caused this hard coating to disappear that they began to try to domesticate the plant.

Once the domestication process began, maize quickly became a central staple in Mayan farming, culture, cuisine, and even its theology. Its production exploded throughout the region and Mayan farmers quickly learned how to pair maize with other crops in a polyculture system known as “Milpa”, which is still widely used in present-day agriculture in Mexico and Central America. Milpa consists of clearing a section of forested land and planting maize, beans, and squash, along with a variety of other tree and shrub crops that varied by region and climate. The core of this system was a style of soil management in which maize was planted in slightly raised “mounds'' that encouraged drainage of the soils around the roots of the maize plant. Beans would climb up the maize stalks for stability, while also fixing nitrogen into the soil to maintain fertility, and the squash provided ground cover and prevented erosion and the establishment of weeds. To allow these tropical forest landscapes to remain fertile for future use, Milpa fields were usually cultivated for about 2 years in succession, then left fallow for up to 8 years before being planted again.

This system and its produce defined Mayan civilization, quite literally, from the ground up: It was foundational to diets and each of these crops still figure prominently in traditional cuisines of Mexico and Central America. Beyond simply defining the food people ate, Mayan creation stories and religions became centered around a Maize God, and the central religious text of Mayan Civilization, the Popol Vuh, described the origins of man itself as formed from dough of yellow and white maize, after the gods’ early attempts using clay and wood had failed.

Eventually, the Milpa system migrated northward to the indigenous civilizations of pre-Columbian North America, including as far north as the Iriquois tribes’ territory in the modern-day northeast of the US. Along the way, the varieties of corn diversified and evolved to suit the climates they were grown in, as did the other crops grown in polycultures along with corn. Still, the core of this system - maize, beans and squash - remained largely the same. That trio of crops eventually adopted another nickname, the “Three Sisters”, by which it is still known in the US.

Thanks to this expansion and adaptation of the crop to a wide range of climates and geographies, Zea mays harbors perhaps the greatest biodiversity of any single crop species, and corn of all shapes, sizes and colors can be found across the world. Modern-day commercial varieties, however, are usually described in five fundamental categories: Pop, Pod, Dent, Flint, Flour, and Sweet. These categories are defined largely by the makeup of the corn kernel itself - density, starch content, size, hardness of the shell, and other characteristics that lend each variety to different uses in human food, animal feed, or other non-food industrial purposes. Most of the field corn grown in the US today would fall into the “Dent” category, which has the widest range of uses. Sweet corn, meanwhile, has a uniquely high sugar content and a very soft texture, and is the main type of corn consumed fresh on the cob.

Scientifically, Zea Mays belongs to the family Poaceae, or what we commonly refer to as Grasses. The fifth largest plant family in the tree of life, Poaceae also includes most other cereal grains, including rice, wheat, and many other popular row crops. Together, grasses account for just over half of all the food calories consumed by humans globally. Nearly half of the world’s production of corn comes from the “Corn Belt” region of the United States, but corn is grown in many other tropical and temperate countries for consumption as food as well as for non-food or industrial uses.

Agronomic Transformation and Establishment as a Modern Cash Crop

Clearly, styles of corn growing employed today have come a long way from the traditional Three Sisters farming system, and nowhere is this truer than in the United States. Corn was among the most popular crops adopted by homestead-era farmers during the westward expansion of the US, and its production has increasingly trended toward dense monoculture row plantings, mechanization, modern breeding and genetic engineering for consistency, yield, and resistance to pests and pathogens.

Corn’s rise to prominence as a cash crop has seen a few major inflection points along this journey, starting with the early development of self-pollination techniques in breeding around the turn of the 20th century.

Prior to modern breeding methods, most field corn was open-pollinated or “cross-pollinated” while in the field, meaning that pollen released from the silks of one plant would spread over the field in the wind and pollinate the flowers on adjacent plants. This often meant that fields of corn, though diverse, were limited in their consistency and yield. In the search for consistent in-field performance, “Corn Shows” became popular social events at state and county fairs of the time, and consisted of competitions in which farmers were awarded based on the size and especially the uniformity of a sample of 10 ears of each variety that they submitted.

Observing these displays, two enterprising researchers named Edward East and George Shull began experimenting with how corn was bred and eventually made a pair of important discoveries. Their first was that, when one individual corn plant was self-pollinated, meaning that its blossoms were pollinated specifically with pollen from that same plant’s silks, its progeny more closely resembled the parent plant than did the progeny of open-pollinated plants. What’s more, if they repeated this self-pollination process about seven times, the degree of differences between generations became so minute that they were nearly identical. In modern lexicon, the results of generations of self-pollination are referred to as “inbred” varieties.

Still, East and Shull noticed that although these inbred varieties were much more consistent in appearance, they often did not grow to be as large as their open-pollinated cousins, nor did they tend to yield as much. Then came their second important discovery: If they crossed one inbred with another, the resulting generation of seeds produced plants that grew larger and yielded even more than the open-pollinated ancestors, just from one generation of crossing. This concept became known as “Hybrid Vigor” and underlies much of modern corn breeding technique - most commercial corn varieties planted in the US are specifically engineered “Hybrids” whose parents have undergone inbreeding and selection for very specific traits.

Once these breeding innovations went mainstream, corn yields across the US began skyrocketing. Data published by the USDA suggest that corn yields per acre in recent decades are about six times what they were as recently as the 1940’s, and various academic studies have attributed this increase in yield to improved genetics. Other innovations occurred within that time across corn and other crops, to be sure: The advancement of the science of genetics lent greater precision to the act of plant breeding, and the quality and effectiveness of fertilizers, irrigation systems, pest management, seeding and harvesting techniques has increased dramatically. Advancement in genetics alone, though, has allowed corn as a crop to become adaptable to virtually any means of intensification that farmers and agronomists could think of.

Today, the science, engineering, and mass production of corn as seed has become an industry unto itself. Farmers are able to plant entire fields using a single commercial corn variety, which when wind-pollinated maintains a much greater degree of consistency than a truly “open-pollinated” field would exhibit. Most modern farmers source seeds from companies like Bayer and Corteva who precisely control their traits and can engineer them for disease resistance, climate resilience, and other aspects of hardiness critical to consistent harvests.

Beyond breeding, US corn farmers have been some of the keenest adopters of “precision agriculture” technologies such as autonomous machinery, gps-linked soil sampling, drone and satellite imagery and more, all geared toward finely-detailed monitoring of crop growth, health, and yield, even allowing for farmers to forecast profits and react to pest, pathogen and climate pressures in real time.

Modern-Day Production in the US

Given all of the innovations in production that it has generated, and the incredibly large land area planted in corn, the US is unsurprisingly today’s runaway leading corn producer at over 14 billion bushels per year. Illustrating the incredible increases in yield over the past century is the fact that, since about 1940, the total acres of corn planted in the US has actually been stable, whereas the amount of corn harvested has increased more than six-fold.

Perhaps the greatest factor driving the US’ sustained leadership of global corn production has been the development of a vast array of industrial uses for the product. Corn’s multitude of uses beyond direct consumption as human food has been well-publicised, but the US’ national statistics are nevertheless staggering: Of the 14 billion bushels harvested, only about 215 million, or 1.5%, are directly consumed as human food. By comparison, 5.65 billion bushels (39% of the national harvest) are consumed as livestock feed grain, 3.88 billion (27%) are used in the production of biofuels such as ethanol, and 2.55 billion (18%) are exported to other countries. With such a large portion of the national crop going into livestock feed, Corn by itself represents roughly 95% of the national feed grains sector.

Alongside the 1.5% of the national harvest that goes into direct human food consumption, corn is processed into a plethora of other ingredients used in industrial food products such as high-fructose corn syrup, other sugars like dextrose and glucose, ingredients in beverages and alcohol, corn oil, corn starch, and other baking ingredients.

As of 2020, the leading producers among all US states were Iowa, Illinois and Nebraska, but corn was grown commercially in at least 41 states.

Threats to Production, Along with New Innovations

Having played an outsized role in cementing the US as a global agricultural superpower, the future of Corn production in this country and elsewhere may well be defined by how farmers are able to respond to several new large-scale threats born of its current prominence: Soil degradation, biodiversity loss, and climate change.

One major challenge is that, as the production of corn and other row crops has intensified, there has been widespread degradation of soils across the Corn Belt. Infamously, about a third of the present-day Corn Belt region - roughly 100 million acres - has completely lost its organic carbon-rich topsoil layer, which was once meters thick and is crucial for the long-term productivity of the land due to its nutrient and water retention properties.

Along with this physical degradation, soils have also seen a steep decline in their microbiological health, which is crucial to natural defenses against pest and pathogen outbreaks. Additionally, the landscapes of the American Midwest have seen immense losses in other ecological diversity, such as among insect communities. Lastly, as if biodiversity loss in the surrounding environment isn’t enough, there has even been an alarming drawdown in the remaining genetic resources of the Zea mays species itself - under the influence of commercial pressures for yield, the crop has lost many of its original “landrace” varieties and has become increasingly homogenous.

Climate change will further complicate this picture in a number of ways. It will exacerbate extreme weather, make changes to seasonal weather patterns less predictable, and will give rise to more intense pest and disease pressure on crops. However, these crises have one fortunate thing in common: Both nature-based and engineering-driven defenses and mitigation methods abound, and are gaining increasing traction across the US and global agricultural industries.

For instance, there is mounting interest in academic and commercial plant breeding research, as well as from various NGOs, in finding ways to leverage traits of “landrace” varieties of Corn to build in hardiness to specific pests and diseases that pose a particular threat, as well as to tailor breeding methods based on those traits to specific climates and geographies. Additionally, crop rotations and the use of cover crops have long been known to reduce pest and weed pressure, and renewed interest in these practices is accelerating as well.

Beyond breeding innovations that focus on preserving and taking advantage of corn’s inherent genetic diversity, advances in genetic engineering have given breeders the ability to redesign the physical structure of the crop itself. Development of “short-stature” varieties, specifically, has presented farmers with game-changing potential to simplify crop management and raise the baseline expectation for yields.

Short-stature corn changes the game in a few ways. These varieties are, as their name suggests, physically shorter than most commercial hybrids. Taller varieties often succumb to issues like “green snap”, or breakage of the stalk during phases of rapid vegetative growth due to high winds; often, plants that succumb to green snap will not go on to produce ears. Additionally, a similar issue known as “stalk lodging” can occur after the plant has fully matured: If under enough stress, the stalk of a very tall ear-bearing plant may break, causing the plant to collapse and complicating harvesting. Short-stature varieties, however, are both physically sturdier and more efficient, spending less of their energy on vertical biomass and more on ear development than taller hybrids. These characteristics make them less susceptible to stalk breakage throughout their physical development, and also allow growers to run sprayers over them all season long, whereas taller hybrids have always been incompatible with late-season foliar sprays or fertilization due to their size.

Researchers at Bayer Crop Science, Stine Seeds, and other major industry players have poured resources into R&D programs for these new varieties over the last several years. With some short corn hybrids already introduced in trials in Mexico under the brand Vitala, these varieties are making their way through the US pipeline and are targeted for commercial release within the next three years. Excitement for these varieties is growing, especially in drought- and wind-stressed regions of the Corn Belt such as the central and northern Great Plains.

What’s more, the use of cover cropping, crop rotations, and other agronomic changes such as using natural microbial seed coatings and reducing or eliminating tillage have the potential to reverse climate change. Companies like Indigo are incentivizing farmers to implement these measures by quantifying and marketing carbon offsets based on the effectiveness of these farming methods at sequestering atmospheric carbon back into soils. If successful, this approach could have significant positive feedback for corn growers as well, in that it would restore carbon and organic matter back to depleted soils and thereby support sustained yields over the long run. Regenerative approaches like this to “decarbonizing” the atmosphere through agriculture are gaining traction in the mainstream business community.

Cropland planted in corn represents a compelling investment opportunity

Corn is emblematic of all of the characteristics we at FarmTogether see in solid row cropland investments: A wide variety of industrial uses for the crop, an established commercial presence, tons of scientific advancement in its production and a future full of promising opportunities and resiliency to the threats of our time. Corn will be central to our plans to expand further into row crops, so stay tuned for news about new investment offerings.

FarmTogether’s mission is to support sustainable and profitable farming by leveraging technology, and removing the barriers to entry to farmland ownership, all the while providing individuals, our investors, with an opportunity to share in the rewards from farming well.

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Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.

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