Brazil baffles as atrocious corn season still yields late supply boost
One of Brazil’s most underwhelming harvests in years has still delivered a sting to the tail end of the season as a burst of pressure on domestic and FOB basis across the country has returned it as a surprise export supply option.
Domestic prices have fallen in recent weeks, sliding on the back of resupply arriving from Argentina and amid fears over the trade in some key livestock export options after beef production heading to China was halted amid a disease outbreak.
That appears to have spooked farmers that have been holding onto corn stocks and prompted enough selling from storage to weigh on levels.
“I really don’t see any ‘surge’ on corn trades yet, but the corn market works much more on mist than soybeans,” Victor Gusmao with the brokerage Zairam Commodities told Agricensus.
“But we’re kind of oversupplied with corn. Our crop didn’t break as much as the market was expecting, and now some buyers have even started to be sellers,” Gusmao said.
Alongside that, a recovery in the value of the US dollar versus the Brazilian real has made corn exports from South America more attractive with a flurry of South Korean buying in the middle of the week also likely to be sourced from the country.
That comes despite Brazil undergoing a major transformation in its production prospects, with early promise of an expected corn crop of over 110 million mt gradually giving way to much lower outlooks.
The USDA trimmed its outlook to 86 million mt, a reduction of over 20% versus initial expectations.
That came as drought conditions reduced yields in Brazil’s first corn crop, before late planting of the second safrinha crop exposed plants to cold conditions.
But while the southern states of Brazil were undoubtedly hard hit, the country’s biggest agricultural producing state, Mato Grosso, suffered less yield damage than other regions – creating fears among some that the state’s farmers could have overstated the scale of damage to their crop.
“It leads us to believe that maybe some ‘bad news’ was outsized,” another trade source said, with Mato Grosso’s position as the biggest producer and exporting state making its production key, especially as those farmers are now poised to start harvesting the next soybean crop.
“Export parity is pretty good and much of that leftover corn is being sold as we are about to crop a bumper soybean season,” the source said.
Alongside that, Argentina has provided a constant flow of corn to its neighbour in order to plug the expected shortfall in domestic supply and line-up data still shows 180,000 mt of corn expected to load in the Up River complex bound for Brazil just in the coming days through to early November.
Domestic prices have wilted as a result, with the agroeconomic unit of Sao Paulo university, Cepea, reporting a domestic price of BRL86.89/60 kg bag on Thursday ($258.75/mt), the lowest price since the end of June.
Basis premiums at the FOB Santos hub have also softened with prompt November loading cargoes heard offered at 120 cents over the December futures contract on Friday, down from 147 cents at the same point last week.