May. 27, 2016
Brazil is famous for its soybean production, but the international markets are focused on Brazil's corn crop as well. Brazil has emerged as the world's second largest corn exporter after the United States and if there is a problem with Brazil's corn production, it can have implications for the market.
Currently, Brazil is importing significant amounts of corn from neighboring countries and the United States due to a severe shortage of corn in the domestic market and unfortunately, it will take two more corn harvests before the corn situation is stabilized in Brazil.
Two thirds of Brazil's corn is produced as the safrinha crop, which is planted after the first crop of soybeans are harvested. Unfortunately, the weather this year has been very adverse and the record large safrinha corn crop that had been anticipated at the start of the year is not going to materialize. Hot and dry weather across central Brazil during April and May is expected to reduce the safrinha corn crop by 8-10 million tons. Earlier this year, Conab had anticipated that the safrinha corn crop would produce 58 million tons, but their latest estimate is down to 52 million tons and that is expected to decline further in subsequent reports.
The largest safrinha corn producing state is Mato Grosso and the safrinha corn harvest is just getting underway in the state. The Mato Grosso Institute of Agricultural Economics (Imea) indicated earlier this week that 0.4% of the corn has been harvested and that the harvest pace will pick up in early June. Across most of central Brazil, the safrinha corn harvest will accelerate during the second half of June.
In anticipation of a record large 2015/16 safrinha corn crop, Brazil was very aggressive in exporting the 2014/15 corn crop. So much so, that Brazil was in jeopardy of running out of corn in April and May of this year. As a result, the government sold off some of its corn stocks and dropped the import tariff on corn imported from outside of South America. Brazil is currently in the process of importing corn from Paraguay, Argentina, and the United States to supply the livestock industry until the safrinha corn hits the market. This will be the largest amount of corn imports in 15 years.
As a result, domestic corn prices in Brazil are at record levels with some prices above R$ 50 per sack ($7.00 a bushel). Prices are expected to decline as the harvest advances, but not by much. The Brazilian Corn Producers Association (Abramilho) expects corn price to bottom out in the range of R$ 35 to R$ 40 per sack at the end of the year ($4.50 to $5.20 per bushel).
Even at these lower levels, these are good corn prices and they are expected to stimulate Brazilian farmers to increase their corn acreage. The next opportunity to increase their corn production will be the full-season corn in southern Brazil and in northeastern Brazil. In southern Brazil the full-season corn will be planted in August-September-October-November and harvested in December-January-February-March. The full-season corn in northeastern Brazil will be planted in November and December and harvested in March and April. The full-season corn crop only accounts for approximately one third of Brazil's corn production and even if the acreage is increased, it will not be enough to eliminate the tight supplies. The next larger corn crop in Brazil will be the 2017 safrinha corn crop that will be planted in January-February-March of 2017 and harvested in June-July-August of 2017. Domestic corn prices in Brazil are expected to remain very attractive all the way until the next safrinha corn crop is planted. Therefore, it is highly likely that Brazilian farmers will significantly increase their 2016/17 safrinha corn acreage.
If there is good weather for the next safrinha corn crop, then the corn situation in Brazil could stabilize in mid-2017. If the weather for the next safrinha corn crop is similar to this year, then the corn situation in Brazil could remain very tight for the foreseeable future.