Drought in USA changing corn dynamics in Brazil

Date:07-30-2012

Declining prospects for corn production in the U.S. is changing the dynamics of the corn industry in Brazil. Rising international prices of corn is stimulating Brazilian corn exports while at the same time prompting the government to take action to protect the domestic livestock industry from soaring feed costs. Brazil is expected to surpass the old record of corn exports set in 2009/10 when 10.7 million tons of corn was exported. How much it surpasses the old record will only be limited by logistical problems at the Brazilian ports.

Some estimates put Brazil's 2012 corn exports as high as 15 million tons, but less than 2 million tons have been exported thus far and to reach 15 million tons by the end of the year, Brazil would need to export over 2 million tons of corn per month for the remainder of the year, something that has never happened previously in Brazil.

High corn prices have also prompted the government to initiate programs to move surplus corn from central Brazil to corn deficit regions in southern Brazil where much of the livestock industry is concentrated. The corn deficits in southern Brazil are more severe than normal this year due to a debilitating drought last growing season that significantly lowered corn production in Parana, Santa Catarina, and Rio Grande do Sul. One of the problems this year is that the government is going to be competing with exporters for available corn supplies.

The high price of corn is also impacting the small but growing feedlot industry in Brazil. The trend for the last several years in Mato Grosso has been to increase the number of cattle on feed due to the excess production of corn in the state. In May, the Mato Grosso Institute of Agricultural Economics (Imea) estimated that there were 929,000 cattle on feed in the state which represented an increase of 14% compared to last year. In May of 2011 there were 813,000 cattle in the feedlots and in May of 2010 there were 592,000. The next evaluation will be conducted in August and it is expected to show a decrease in the number of cattle due to soaring corn prices and declining beef prices.

The price of corn in Rondonopolis, which is located in southeastern Mato Grosso, has increased 47% since the beginning of June from R$ 15.70 per sack of 60 kilograms to R$23.10 per sack. During the same period, the price of live cattle declined 1% from R$ 84.4 per 15 kilograms to R$ 83.60.

As farmers put more cattle on feed, it allows them to plow up some of their pastures in order to grow more row crops such as soybeans. If fewer cattle are placed in the feedlots, then farmers would be less inclined to convert existing pastureland to additional soybean production.