Jan 13, 2017

Corn Prices in Brazil under Pressure from Increased Production

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

Domestic corn prices in Brazil hit record highs in 2016 due to an overly aggressive export program and reduced production due to hot and dry weather. Those problems are now behind us and as a result, domestic corn prices in Brazil have been steadily declining in recent months.

The market in Brazil is now much more confident that the supply shortages of 2016 will not be repeated any time soon. Brazilian farmers increased their full-season corn acreage due to improved prices and the early corn harvest has started in parts of Parana. The weather has generally been good for the full-season corn crop which will account for about one-third of Brazil's corn production.

The safrinha corn crop, which is planted after soybeans are harvested, will account for two-thirds of Brazil's corn production. The 2016/17 soybean crop was planted very early and Brazilian farmers are expected to increase their safrinha corn acreage. The Brazilian agency Conab has already estimated the 2016/17 safrinha corn crop at 56 million tons based on projected yields that will be 37.7% greater than last year. Conab will issue their first estimate of the safrinha corn acreage in their February Crop Report and it is expected to be larger than last year. How much larger remains to be seen.

While generally declining, domestic corn prices in Brazil are uneven depending on location and the distance from export facilities. For example, corn prices in Mato Grosso, which is the largest corn producing state but also the state furthest away from export facilities, continued to retreat this week. In Campo Novo do Parecis, which is located in western Mato Grosso, the price is currently R$ 26.00 per sack (approximately $3.60 per bushel). Corn prices in Mato Grosso are approaching the breakeven level, while in southern Brazil, they continue to be high enough to guarantee a profit for the farmers.

The safrinha corn in Mato Grosso will be planted in January and February and the harvest will begin in June. Conab is expected the corn prices will continue to decline in Mato Grosso to the range of $2.00 to $2.30 per bushel by June.

In addition to anticipated larger supplies, domestic corn prices are being pressured by the Brazilian currency. It is currently trading at approximately 3.2 to the dollar, which is the strongest it has been in two months. Domestic commodity prices generally decline as the Brazilian currency strengthens.

On the positive side, it is possible that domestic corn price in Brazil might start to increase due to flooding issues in neighboring Argentina.