Brazil hoping to be the corn market saviour…

By Peter McMeekin

The plight of this season’s summer crop in South America dominated market wires in the first 54 days of the year as La Nina induced drought conditions severely impacted corn and soybean production. This changed abruptly on February 24 when Russia’s delusional dictator, Vladimir Putin, ordered the invasion of Ukraine, catapulting Black Sea grain production and exports onto the front page of rural publications globally.

But as the war rages on, uncertainty mounts around Ukraine’s old-crop corn exports and new crop production. This has thrust Brazil’s corn production outlook back into the spotlight. Ukraine harvested a record corn crop late last year, and exports were also expected to be a record in 2021/22 before Putin crashed the party. Global consumers have been forced to seek alternative nearby supplies as shipments from Ukraine ports have been halted indefinitely.

This has dramatically increased the importance of Brazil’s second corn crop in the global supply equation. Also known as the safrinha corn crop, it makes up around three-quarters of Brazil's production each year. Brazil’s first corn crop is usually harvested in the February to April period. It is largely consumed domestically because it is predominantly grown close to the poultry and pork enterprises in the south of the country.

Since the transport costs from most of the major safrinha corn production areas to the export hubs are generally cheaper than freight to the primary domestic consumption regions, the second corn crop has traditionally been far more heavily exported than the first crop. The safrinha crop is also usually harvested in the June to August period each year, just as the peak soybean export period starts to slow, freeing up port capacity for corn exports.

The seeding of this year’s safrinha crop is almost finished. Planted within the ideal climate window, it is reported to be developing extremely well. According to agribusiness consultancy AgRural, 94 per cent of the crop is in the ground, 20 percentage points ahead of the same time last year. The central states of Mato Grosso, Goias, and Minas Gerais account for about 60 per cent of safrinha corn production, and planting wound up in those states early this month. The crop was planted into an excellent soil moisture profile in most regions, perfect for early plant growth.

However, rainfall in March has been more isolated and below average in many districts. Deficits of more than 100 millimetres can be found in Goias and Minas Gerais, with deficits of between 50 and 100 millimetres in much of Mato Grosso. Rainfall deficiencies of this magnitude will eat into the subsoil moisture as corn plants grow and demand more water and will be detrimental to production if widespread rains don’t arrive in the next few weeks.

This comes as producers are looking to bank soil moisture ahead of the dry season, which traditionally commences in the first week of May. However, under La Nina weather conditions, which are persisting much longer than most forecasters expected, the wet season tends to end a week or two earlier. Assuming that happens, maybe as few as three weeks are left to top up the soil profile with enough moisture to finish the crop.

Despite some showers in recent weeks, weather conditions are unusually dry in southern Brazil. Rio Grande do Sul bore the brunt of this season’s drought, which slashed the state's soybean production by around 50 per cent. Fortunately, it does not produce safrinha corn, but Parana, which is around 94 per cent planted, is also suffering from dryness. Normally the country’s second-biggest producing state, a late plant, the drought and a late-season cold snap cut Parana’s safrinha corn yields in half last year. A repeat would not augur well for this year’s exports.

CONAB, Brazil’s equivalent of the USDA, lowered its first corn crop production estimate to 24.3MMT a few weeks ago, but its outlook for the critical second crop was increased to 86.2MMT. Total production is forecast to end up at 112.3MMT, slightly lower than the USDA’s 114MMT. In 2020/21, the first and second crop output was 24.7MMT and 60.7MMT, respectively, for total production of 87.1MMT.

According to agricultural consultancy Safras & Mercado, farmers in many regions have responded to the high price signals and almost certainly planted more second crop corn than initially planned. As a result, the company is looking to increase safrinha corn production, possibly to more than 83MMT. The company is already forecasting a record total corn crop of 115.7MT.

Agroconsult, a private Brazil-based forecaster, posted a much higher second crop forecast of 92.2MMT. The company will survey corn fields across the country over the next few weeks to confirm the estimate, which is 52 per cent higher than last year’s production.

On the export front, Safras & Mercado have landed on 34.5MT for the moment, up 66 per cent on last year. CONAB is currently a tad higher at 35MMT, down from 36.68MMT in January, but this forecast was released before the Ukraine incursion. International financial services provider StoneX is far more optimistic about Brazil’s increased role in this year’s corn trade, posting a 40MMT export estimate, almost double that of last year. The USDA is higher again at 43MMT, unchanged month-on-month, so it is yet to build in the Ukraine scenario.

Last Thursday’s rumour mill was awash with talk of Spain purchasing upwards of 400,000 metric tonne of Brazilian first crop corn. Notwithstanding the extremely attractive global price environment, this is a huge endorsement for the prospects of this season’s safrinha crop. This talk comes just ten days after Spain temporarily relaxed rules on the importation of Brazilian and Argentinian corn after supply gaps emerged following the Russian invasion of Ukraine.

The disruption to corn exports out of the Black Sea has turned up the heat on Brazil to fill the growing chasm in global supply. The safrinha crop is off to a good start with a timely plant into adequate soil moisture in most regions. March has been dry, but there is still time to top up the moisture profile and lock in output before the dry season arrives.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.