Feb 17, 2017

Forward Corn Sales in Mato Grosso Remain Slow

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

Farmers in central Brazil are currently busy trying to harvest their soybeans between showers and plant their safrinha corn crop. As a result, they have not been very attentive in forward contracting their anticipated 2016/17 corn production.

According to the Mato Grosso Institute of Agricultural Economics (Imea), farmers in Mato Grosso continue to be very slow to sell their 2016/17 corn production. Imea recently reported that as of last week, farmers in Mato Grosso had sold 35% of their 2016/17 anticipated corn production compared to 77% that had been sold last year at this time. While farmer sales are less than half of last year's pace, they are about on pace with the five year average.

Farmers were very aggressive in forward contracting their corn last year due to the very high domestic corn prices in 2016. Last year at this time, Brazil was in the midst of a corn supply crisis. Exporters had been overly aggressive in exporting corn in late 2015 due to a devaluation of the Brazilian currency. As a result, Brazil ran out of corn in early 2016 forcing livestock producers in southern Brazil to contract emergency corn imports from Paraguay, Argentina, and the United States.

To complicate the problem even more, hot and dry weather resulted in a very disappointing safrinha corn crop in 2016, making the shortage even worse. Domestic corn prices in Brazil reached record high levels in June of 2016. There were even reports that you could not buy corn at any price in Brazil in mid-2016 because it was not available.

In that light, farmers in Mato Grosso and all throughout Brazil were very aggressive in forward contracting their corn, probably too aggressive. The hot and dry weather resulted in very poor safrinha corn yields in 2016 and as a result, many farmers could not fulfill their contracts or pay their production loans. The financial problems surrounding their 2015/16 safrinha corn crop led them to be much more cautious in selling their 2016/17 corn crop.

Unfortunately, that may have been the wrong strategy this year. Domestic corn prices are declining in Brazil due to a much larger corn supply and prices are expected to continue declining going forward. Many market analysts are expecting domestic corn prices to fall to the minimum price guaranteed by the federal government or even lower when the safrinha corn harvest gets underway in June.

Imea is estimating that approximately 46% of the safrinha corn has been planted in Mato Grosso, which is on pace with the average planting progress, but 10% slower than last year. The ideal planting window for safrinha corn in Mato Grosso closed about February 20th. If corn is planted after that date, the risk increases that the corn may not get through the grain filling process before the end of the summer rainy season.

The safrinha corn crop represents approximately two thirds of Brazil's total corn crop and it is the safrinha corn that goes into the export channels. Brazil's corn exports start in August, they peak in September-October-November and they start to decline in December and January.