Brazil ‘Little Crop’ Poses Big Problem for Slumping Corn Market

June 12, 2015 06:34 AM
Brazil ‘Little Crop’ Poses Big Problem for Slumping Corn Market

Don’t be fooled by the name. Brazil’s so-called little crop is going to be bigger than ever, flooding an already oversupplied global corn market and further pressuring prices.

Forecasters increased output estimates this week to 81 million tons for the summer and winter growing seasons, as heavy rains prompted a cornfield growth spurt. The Porto Alegre-based research company Safras & Mercado is even more optimistic, expecting a record 83 million tons.

Global corn prices have slumped 24 percent in the past year as bountiful harvests in two straight seasons boosted supplies to all-time highs. The prospect of another bumper crop in the U.S. is already weighing on the market, and researchers say the industry is underestimating Brazil’s farmers.

“The market seems to be looking only at the U.S. and ignoring South America’s supply picture,” Paulo Molinari, an analyst with Safras & Mercado, said by telephone.

Farmers in Brazil typically plant corn after the soybean harvest, taking advantage of late Southern Hemisphere summer rain. This second planting is known as “safrinha,” or “little crop,” which Safras & Mercado expects to reach 53 million tons this year, more than the total from this year’s summer season.

“As the harvest advances and this corn hits the market, prices will be further pressured down,”Ana Luiza Lodi, an analyst at INTL FCStone Inc. said by phone from Campinas.

Global Exports

Brazil’s corn output doubled over the past decade after surging prices encouraged soybean farmers to diversify into corn as a second crop. Its share of global exports has almost doubled to about 20 percent since the 2009-2010 season, making in the second-biggest supplier, according to data from the U.S. Department of Agriculture.

“Brazil’s output will start to reflect on prices when U.S. exports from the 2015-16 crop start to struggle with fiercer competition,” Pedro Dejneka, managing partner for AGR Brasil, a unit of Chicago-based AgResource Co., said by phone while traveling through corn fields in Mato Grosso state.

The analysts couldn’t estimate how much corn prices may slide.

Most of Brazil’s corn output is consumed by local chicken and pork producers including BRF SA and JBS SA. Increased exports should absorb most of the rest, Anderson Galvao, head of crop forecaster Celeres, said by phone.

International shipments will rise to as much as 24 million tons this year from 20 million tons last year, he said. The U.S., the world’s biggest corn exporter, will export more than 46 million tons.

Port Capacity

Brazil’s limited port capacity may hinder farmers’ ability to export corn, said Steve Cachia, an analyst at brokerage firm Cerealpar.

“Brazil can’t manage to export all the soybeans and all the corn it could because of logistics constraints,” he said by phone from Paranagua.

Brazil’s corn productivity rose by 60 percent over the past decade to about 5,200 kilograms per hectare as farmers adopted better seeds. In top producing Parana state, yields reached 8,654 kilograms per hectare in the summer harvest, according to data from the government researcher Conab.

Above-average rainfall in February and March is boosting the prospect for the June-to-August winter harvest.

“Conditions are really very good,” Galvao said. Celeres, which last month predicted a 48.4 million-ton winter harvest, may raise its forecast to as much as 52 million tons. “Corn fields from Parana to Mato Grosso are divided into good, very good and exceptional.”

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