Commodities 2024: Weather challenges in Brazil to create prospects for Argentina corn in 2024

By Shivam Prakash and Sergio Alvarado

Global corn production is expected to rise among key producers in 2024, according to market sources, but weather conditions in Brazil will play a decisive role in global trade flows next year, as competitors the US and Argentina aim to chip away at Brazil's share of global supplies, analysts said.

Record production in Brazil, along with competitive prices since the start of the 2022-23 marketing year, helped it overtake the US as the largest global exporter of corn.

However, US and Argentinian prices have been falling since February, competing with Brazil, according to S&P Global Commodity Insights.

On the other hand, Brazil FOB Santos prices have been rising since October, trading above its competitors.

"Larger exportable supplies in major producers and lower global prices are expected to continue supporting higher demand for corn imports in October-September 2023-24, compared to the year before," the US Department of Agriculture told S&P Global.

With logistical challenges facing Brazil's northern ports, fueled by a severe drought in the Amazon, the lowest ever river levels on the Rio Negro, and higher waiting time at Santos, Brazilian corn exports in the early months of 2024 could run into hurdles, analysts said.

Furthermore, rising freight costs due to diversion of shipments from northern ports to Santos are expected to add to the FOB and CNF prices, hurting Brazil's price competitiveness, they said.

Similarly, the USDA's 2023-24 production outlook estimated a year-on-year increase of 11% for US and 62% for Argentina corn towards the end of the marketing year.

Meanwhile, sources estimate a reduction for Brazil on account of a delay in soybean planting, eventually narrowing the optimal planting window for the second corn crop, which makes up 77% of the country's total production.

The USDA projected Brazilian 2023-24 corn production at 129 million mt, down 6% year on year.

More room for Argentina to compete

Severe weather conditions caused a slow start to Argentina's corn production in MY 2022-23. Production declined 31% year on year to 34 million mt.

However, sources said they believe MY 2023-24 will bring new prospects for Argentinian corn production and exports, taking advantage of the El Niño phenomena, along with the production and logistical challenges in Brazil.

"With El Niño, we expect a large production and increasing exporting supplies, which will contribute to offset the lower exportable volumes from Brazil," Gabriel Faleiros, principal research analyst at S&P Global, said.

Guido D'Angelo, senior economist at the Rosario Board of Trade, said: "According to our preliminary projections, production is expected to reach 56 million mt in 2023-24, growing 65% compared to the last crop season, while grain exports will double compared to the previous season."

The drought in Brazil is expected to create further advantage for Argentina's corn exports.

With persistently low water levels, Brazilian grain shipments will require more barges to transport, boosting freight costs and affecting its overall competitiveness as a supplier.

Furthermore, agricultural policy will be in the spotlight in the coming months following the change to Argentina's government.

Javier Milei, the new president, has promised potential and gradual changes in export duties, less market intervention and more support for farmers, potentially key factors in fostering competitiveness and production for the coming seasons.

Mississippi River water levels a concern for US

The USDA has projected 2023-24 US corn exports at 53.34 million mt, up 26% year on year. However, analysts said they believe the USDA is too optimistic.

Low water levels in the Mississippi River pose a challenge to US corn exports and are pushing up freight costs.

Mexico is the biggest buyer of US corn, and in the event of logistical challenges, Mexican end-users with access to the US Gulf Coast have been switching a good percentage of their needs from the US to Brazil, market sources said.

"To hedge the supply risk, for years we have been buying a couple of corn Handymaxes per year from Brazil," a Mexican feed miller said.

"But, as a result of the problems on the Mississippi River with a lack of water that puts our supply at risk, we have been buying at least 30% of our needs from Brazil, six Handymaxes per year."

A Mexican buyer said: "Given the success in the punctuality of shipments and the excellent quality, we could be buying next year around 45%-50% of our needs from Brazil, eight to nine Handymaxes per year."

Meeting Asian demand

The entrance of Brazil into the Chinese corn market in 2022-23 provided a major boost to its exports. Analysts said they believe one of its main impacts was the competition with US corn.

Brazilian corn exports to China put US FOB and Chicago prices under growing downward pressure, while hurting Argentinian FOB prices, D'Angelo said.

Market experts do not consider the flow of corn from Brazil to China as an exception and said they believe exports will continue through 2023-24. Therefore, the competition with US corn exports will continue into the next marketing year.

"Year to year, our current forecasts for corn demand in Asia are up moderately in most countries, with the largest growth in China and Vietnam," the USDA said.

The outlook is more optimistic for Argentina. Southeast Asia has key markets for Argentinian corn, making up a quarter of its exports.

Although Argentina doesn't export corn to China, market sources suggest agreements are already underway for the coming marketing year.

"A Brazilian corn crop below expectations in a few months can trigger new sales of corn from the US and potentially put some upward pressure on prices, also fostering values for Argentina's exports," D'Angelo said.

Thus, weather conditions in Brazil will play a decisive role in shaping the global corn supply and demand equation in 2023-24 and create new prospects for Argentina.