Brazil's Drought Opens Up Hot Market for American Farmers

April 27, 2016 05:00 AM
 
Brazil's Drought Opens Up Hot Market for American Farmers

Brazil’s drought could be good news for American farmers, opening up corn exports to the South American country for the first time in more than two decades.

Brazil, the world’s third largest corn producer, last week dropped the 8% to 10% corn import taxes for countries outside the MercoSur trade block, unleashing a new market for corn exports that would include the U.S., according to analysts.

Brazil’s six-month suspension of the import tariff makes U.S. corn competitive with Argentine corn. It could cover up to and one million tons of corn, according to analyst Michael Cordonnier, of Soybean and Corn Advisor.

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Other analysts also see Brazil’s troubles as a boon for American farmers. “U.S. corn is currently competitive with Argentina corn into Brazil, and there have been rumors that purchases have been made, according to Dan Hueber of the Hueber Report. “If confirmed, it will be the first time they have purchased corn from this county in over 20 years,” Hueber said in The Hueber Report.

Already, Brazil has booked a record-breaking 700,000 tons of corn from duty-free trading partners Argentina and Paraguay. And a mysterious 136,000 ton U.S. corn cargo shipment could be headed to Brazil, according to a Reuters story.

Despite improving weather, the drought already has devastated much of Brazil’s safrinha crop, causing an estimated loss of 3 million tons just last week for a projected 79 million tons of corn.

In a worst case scenario, losses could soar to 4 million tons and production of just 75 million tons of corn, according to Cordonnier.

“The safrinha corn crop is shrinking on a daily basis, and the question is how bad it could be,” explained Cordonnier.  So far, at least half of the crop is “experiencing some level of moisture distress,” with some areas of western Minas Gerais, reeling from 50 days without rain, he observed.

Soaring exports driven by the real’s devaluation cut off supplies of corn for hog and poultry producers in southern Brazil and forced them to turn to Argentina, Paraguay and, possibly, the United States until the safrinha corn harvest starts later in June, Cordonnier said.

But because of the relatively short window for corn exports, some analysts see the opportunity as limited for U.S. producers.

“I think (Brazil) did get hurt with weather as their crop was finishing. It should help move some business to the U.S., with them losing a few million metric tons. I don’t think it’s that big a deal however,” said Andrew Shissler, a partner at S&W Trading in Downers Grove, Ill.

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