Brazil’s Drought: The Trigger that Could Take Corn Prices Higher?
This year, USDA is calling for record corn production from Brazil. For 2021/22, the country’s corn crop is predicted to hit 116 million metric tons (mmt), which is larger than last year’s crop by 33%. Corn yields are estimated at 5.50 tons per hectare, 26% above last year’s mediocre crop and 5% above the five-year average.
Brazil grows three rounds of corn each year. The Safrinha crop, which accounts for 76% of total corn production in Brazil, is in its vegetative state and will be harvested between May and August.
That growing crop is facing severe drought conditions, according to the latest Root Zone Soil Moisture Drought Indicator map from NASA's GRACE mission.
“Drought has emerged across parts of the Safrinha corn crop in Brazil,” reports Eric Snodgrass, principal atmospheric scientist for Nutrien Ag. “The end of the South American monsoon has come earlier than average this year due to a surging La Niña. The drier finish on the Safrinha crops will limit their yield potential – especially for late-planted corn.”
Mato Grosso, Brazil’s top Safrinha corn producer, is facing its driest April in 17 years, according to weather service EarthDaily Agro. Accumulated April rainfall for the state is expected to be 70% below the 10-year average. Neighboring Goias is expected to have an 85% reduction in April rainfall.
“This is a big deal, and it is not being talked about nearly enough,” says Joe Vaclavik, president of Standard Grain. “Most of the focus right now for the corn market is on the U.S. weather situation and planting delays, but this is a big deal. Common logic says it's too early to get worried about U.S. planting delays, but maybe in a tight situation like this maybe that's a warranted argument.”
Vaclavik expects Brazilian corn crop estimates to start declining soon, maybe even ahead of the May 12 World Agricultural Supply and Demand Estimates.
What does Brazil’s drought mean for corn prices?
Kevin McNew, chief economist at Farmers Business Network, says the long-lasting and widespread dryness in Brazil is reason for concern.
“You’ve got about 30% to 40% of the crop that's got some level of stress on it,” he says. “There's not any sort of significant rainfall in the forecast in the next 10 days. If we don't start to see some rain that could be our catalyst for another leg up.”
Brazil is the third-largest corn producer in the world (following No. 1 U.S. and No. 2 China). McNew says the Brazilian corn crop is the main global supplier between now and the U.S. harvest this fall.
“So, it is all the world's got to draw from,” he says. “That may be the catalyst that gets us to what I know a lot of farmers think starts with one and has two digits before the decimal.”
Listen to McNew discuss the current markets with Chip Flory on AgriTalk:
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