ANALYSIS: Brazil corn exports squeezed by crop woes, feed demand

The prospect of Brazil repeating last year’s huge export rush for corn this season looks increasingly remote, as worries over the impact of dry weather on production and further increases in domestic demand are likely to squeeze the export surplus.

The domestic livestock market is caught between two pandemics – largely benefitting from the lingering influence of African swine fever in Asian pork production and, so far, largely unscathed by the human impact of Covid-19 that has raged through US and EU meat production facilities and brought temporary chaos to feed supply chains.

Along with production fears, the on-off nature of US-China trade relations and the uncertainty around the impact of disease and lockdown, means analysts are struggling to estimate what the country’s corn exports could amount to.

“The corn market here is very difficult to read this year… and the golden question is exports. They are very bad, compared with 2019, when we broke records,” Geraldo Isoldi a broker with Commcor DTVM told Agricensus.

While the USDA still expects Brazil to produce 101 million mt, unchanged on last year, local analysts such as Agrural have pared back their outlooks to 96.4 million mt – amounting to a 4.5% fall if realized, despite planting on a larger area.

Dry weather has taken a toll on southern regions’ production, although Mato Grosso – the country’s biggest safrinha corn producer and the origin of much of Brazil’s export firepower – has reported strong yields as the harvest approaches a 17% completion rate, according to the state agency IMEA.

But the country has seen a recovery in its domestic demand, with Brazil’s livestock sector showing strong 4.3% growth through the first quarter of 2020, prompting the animal feed industry group Sindiracoes to forecast a 4% increase in feed production for the full year to over 80 million mt.

That is expected to have a knock-on impact for the slate of feed components.

At that level, feed production is likely to result in a 4% increase in feed inputs, with corn demand expected to reach 47 million mt in 2020, up 1.8 million mt on 2019, while soymeal use is expected to rise from 16.7 million mt to 17.4 million mt.

And it could go higher – while thoughts have focused on the country’s record-breaking soybean exports, beef and pork exports are also outstripping last year’s pace, with data for the first three weeks of June already confirming that pork exports are 4% ahead of the full month of June 2019 at 56,500 mt.

Alongside that, beef exports are on track to exceed last June’s total too, standing at 107,000 mt, just 6% behind full-month figures, official export data shows.

China itself, according to the Netherlands-based Rabobank, is expected to see its pork production fall 15-20% through 2020, although the bank notes that herd recovery is underway.

Another dimension is Brazil’s burgeoning corn-based ethanol capacity, where Covid-19 outbreaks and lockdowns mean the 13 or so new projects in Mato Grosso and Goias that had been expected to be built through 2020 and 2021 are likely to be on hold for the foreseeable future.

Although only a small part of Brazil’s corn complex, the ethanol sector is expected to avoid much of the lockdown damage, maintaining relatively good production as the country’s cane-based sector shifts production towards sugar.

Even without new capacity, the sector still contributed 1.6 billion litres of ethanol in 2019, according to Conab, and is likely to have accounted for at least 4 million mt of corn.

Finally, such was the frenetic pace of Brazil’s corn exports through 2019 that the country rapidly drained its reserves – its abundant 101 million mt corn crop arriving earlier than usual and at a time when rain continued to dog the US Midwest.

That drove US prices higher and raised quality fears over the state of the crop, leaving Brazil to mop up buyers across the world, slashing domestic stocks by up to 44% to around 4.4 million mt, according to Mato Grosso’s IMEA.

In the USDA’s 2018/19 marketing year, Brazil exported almost 40 million mt of corn from its harvest, with the agency forecasting 35 million mt for the current 2019/20 marketing year, but many trade sources doubt it can reach that level.

“If we have an export of 35 million mt and work with conservative consumption of around 65 million mt due to Covid… we have our entire harvest, if the expectations of consultants are confirmed,” Isoldi said.

Some sources expect Brazil’s corn exports could dip as low as 30 million mt, a 10 million mt drop that would facilitate the near 10 million mt increase in US exports that the USDA is forecasting for 2020/21 and marking Brazil’s lowest export tally since 2017/18.