Dec 19, 2016

Corn Supply Crisis in Brazil Easing, Will not be Repeated in 2017

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

For nearly all of 2016, the biggest agricultural story in Brazil was the shortage of corn that sent domestic corn prices to all-time record highs. The cause of the shortage was twofold. The problem started in late 2015 when a devaluation of the Brazilian currency led to an overly aggressive corn export program out of Brazil. Brazil exported corn at a record pace in late 2015 and early 2016. As a result, Brazil ran out of domestic corn early in 2016 forcing significant corn imports from Paraguay and Argentina.

The second leg of the crisis was hot and dry weather in central Brazil in 2016 that drastically reduced safrinha corn production in Mato Grosso as well as in central and northeastern Brazil. This in turn, forced more corn imports from Paraguay, Argentina and the U.S. over the last few months to bridge the supply gap until the full-season corn could start hitting the market in early January 2017.

During this period of very high corn prices, livestock producers in southern Brazil cut back on production due to high feed costs. Independent producers were hit the hardest with many temporarily suspending production. The larger industrial producers were able to arrange for corn imports to keep their operations running although at negative margins. In some locations in southern Brazil, there was not any corn available for purchase in mid-2016 at any price.

The corn shortage in Brazil now seems to be resolved. Enough corn has been imported into Brazil to bridge the supply gap until the full-season corn begins to be harvested in early January. The full-season corn production will be large enough to supply the domestic market until the safrinha corn harvest begins in June in Mato Grosso.

The safrinha corn crop is expected to rebound significantly due to an early planting of the soybeans which will allow for an early planting of the safrinha corn and potentially good yields. The safrinha corn crop is expected to be large enough to not only supply the domestic market, but to also resume hefty corn exports from Brazil.

This is all good news for Brazilian livestock producers who are expected to increase poultry production 3% to 5% in 2017. Hog and egg production are expected to increase 2% in 2017. Independent livestock producers are expected to resume production as feed costs decline and domestic meat consumption increases due to the slowly improving economy.

It is not good news for Brazilian corn producers due to declining domestic corn prices. Domestic corn prices are declining in Brazil not only due to increased domestic supply, but also due to record large corn production in the United States.

Mato Grosso is the largest corn producing state in Brazil and farmers in the state have sold 31% of their anticipated 2016/17 corn production at an average price of R$ 18.60 per sack or $2.50 per bushel. Conab stated in their December Crop Report that they expected corn prices in northern Mato Grosso to decline to $2.00 to $2.30 per bushel by June when the safrinha corn harvest gets underway. Farmers in Mato Grosso are expected to increase their safrinha corn acreage, but they may cut back on inputs due to the unattractive corn price.