Aug 03, 2016

Brazil could Run Out of Corn Again in Early 2017

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The corn that is currently being exported out of Brazil are contracts that were written months ago. No new export contracts are being written due to the high domestic corn prices, so once these exports leave Brazil, there will not be any new corn exports any time soon. In fact, it is entirely possible that Brazil will run out of corn again in early 2017 for the second year in a row.

This past April and May Brazil had to import corn from Argentina and Paraguay for the livestock producers in southern Brazil. The Brazilian government sold off the majority of the corn they had in storage in an effort to pressure corn prices. Import duties and taxes were also temporarily suspended to facilitate imports. Recently the government announced that the suspension of duties and taxes would stay in place through the end of 2016 and it could well be extended into 2017.

Livestock producers in southern Brazil, as well as the market in general, all realize that the corn situation in Brazil is getting worse and that Brazil may need to start importing corn in early 2017. The livestock producers have asked the government for help, but it is unclear what the government can do outside of giving subsidizes to purchase imported corn.

Farmers in southern Brazil will likely plant more full-season corn starting later this month if the weather cooperates, but the full-season corn crop in Brazil only represents approximately one-third of Brazil's total corn crop. Any relief from tight supplies will have to wait until the next safrinha corn crop is harvested in June and July of 2017. In fact, farmers in Rio Grande do Sul have already started planting their 2016/17 full-season corn in the hope of harvesting the corn in time to plant a second crop of soybeans.

It is amazing how fast the corn situation has changed in Brazil. In 2015, corn production was "riding high" in Brazil and the country exported more than 30 million tons of corn. In 2016, the safrinha corn crop was severely impacted by adverse weather and Brazil's corn exports will probably end up below WASDE's current estimate of 18.5 million tons. In 2017, it is unclear how much corn Brazil will export, it will depend entirely on the success of the 2017 safrinha corn crop.

Individual states are trying to help out their hog and poultry industries in an effort to protect them from record high corn prices. The state of Santa Catarina announced in March that the ICMS tax on live hogs produced in Santa Catarina would be reduced from 12% to 6% until July 31st. That tax reduction has now been extended until December 31st in an effort to keep hog production in Santa Catarina competitive with other states in southern Brazil. An independent hog producer in the state who previously paid R$ 43.56 per live hog sold to a processor in another state (approximately $13), now pays R$ 21.78 per animal (approximately $6.60).

Santa Catarina is the largest hog producer and pork exporting state in Brazil. There are approximately 10,000 hog producers in the state who produced 2.1 million tons of pork in 2015. With a hog herd estimated at 6.1 million head, Santa Catarina is responsible for 35% of Brazil's pork exports. The principal destinations for these pork exports are: Russia, Hong Kong, Angola, Singapore, Chile, Japan, Uruguay, and Argentina.