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US corn farmers set to widen lead over Brazil in Chinaqrcode

May. 18, 2020

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May. 18, 2020
Attractive prices and ample stocks are expected to sharpen the US' edge over Brazil in supplying China with corn this year, even with an expected record crop and weaker currency in the South American country.

China, a heavy consumer of the cereal, is heard to be preparing to buy around 20mn t of foreign corn to restore its reserves, in a decision that could heat up farm trade competition between the US and Brazil, the world's main exporters.

The US has historically been a leading supplier of corn to China, especially when compared with Brazil. In 2019, the US exported 309,500t of the cereal to China, versus only 68,550t from Brazil, according to data from the American and Brazilian governments. Brazilian corn exports to China during the last five years have been less than one-third of what the US shipped, on average.

Even a more than 30pc depreciation of the Brazilian real against the US dollar so far this year has not been enough to stimulate purchases of Brazilian corn by Beijing, unlike with Brazilian soybean where the real's depreciation has made that commodity more competitive.

The first reason for that comes from the Chicago Board of Trade (CBOT), where front-month corn contracts have traded near $3/bushel, the lowest level in 13 years. Prices are expected to fall further amid a US acreage expansion this season to 97mn acres and weaker domestic demand from the ethanol industry given the impacts of the Covid-19 pandemic and the resulting economic slowdown.

"With a healthy crop under development in the US farm belt, Brazil should lose competitiveness in corn exports as the grain will become available and CBOT prices might test values below $3/bu," a broker said.

Supply is not an issue. The US Department of Agriculture (USDA) estimates US 2020-21 corn inventories at 3.3bn bushels (84.3mn t), the highest in 33 years. US exports are expected to rise by 21.1pc to 2.2bn bushels (54.6mn t).

Brazilian farmers may fare better selling corn to the local market, with stockpiles low after record exports last year. Brazil's 2018-19 ending stocks totaled 5.2mn t and may fall to 4.4mn t in 2019-20, according to the USDA. For the 2020-21 cycle, stocks are expected to recover to 5.9mn t.

Meanwhile, there are concerns over the winter corn crop (safrinha) performance this year. It accounts for three-quarters of Brazilian production and has been hurt by drought in key producing regions. The harvest is set to begin later this month.

Even with the safrinha concerns, Brazil's corn crop this season is expected to reach a record 101mn t, according to the USDA.

So far, Brazilian domestic corn prices remain supported at high levels - more than 5pc above the CBOT July contract, according to a calculation by a consultancy last week.

For September delivery, domestic prices posted a small premium of R1/($0.17)/bag last week over the export parity price, Brazilian investment bank Itau BBA said.

Selling domestically, therefore, seems to be more attractive for Brazilian farmers than exporting the cereal. Indeed, prices in Mato Grosso state's cities of Rondonopolis and Sorriso, two national references for the market, reached an average of R40/bag last week, from R25/bag by this time last year.

Dutch bank Rabobank, on the other hand, estimates that Brazilian prices could eventually maintain competitiveness against the US cereal even with the safrinha harvest. But this also would depend on how domestic demand will perform – an uncertainty amid the pandemic and the associated damage it has inflicted on the economy.

Brazil's corn exports are usually strong in the second half of the year, shadowing the harvest of the winter crop. USDA pegs them at a total of 36mn t in 2019-20, from nearly 40mn t in 2018-19. For 2020-21, it estimates Brazil exporting 38mn t.

By José Roberto Gomes


Source: Argus Media

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