Currency, Covid-19, weather fire Brazil’s domestic corn to new high

Prices in Brazil’s domestic corn market charged to new highs overnight, as a combination of currency fluctuations, weather worries and further signs of the Covid-19 coronavirus spreading across the country fuelled strong upward futures moves.

Corn futures contracts on Brazil’s B3 exchange pushed sharply higher, with the greatest moves seen on the May, July and September contract according to market sources, while Sao Paulo university’s Cepea agro-economy unit raised its corn index to BRL56.77 per 60kg bag ($196.50/mt) – a new record high.

“Here, it’s a suspicious market again – a weak real and corn even more strong,” one Brazil-based source said, as the real slumped to 4.817 against the US dollar, from 4.298 in mid-February.

That triggered a broader move across the equity markets, tripping circuit breakers that suspended trading for 30 minutes as values moved up, but news that Covid-19 has spread across Brazil and fears of dryness affecting safrinha corn development stoked an already incendiary corn cocktail.

“Corn is strong. We don’t have circuit breakers on futures, only high and low limits... We had a very large number of contracts traded on corn futures, by our standards, 17,994 contracts traded so far,” the source said.

Dry weather has already impacted some parts of the country’s first corn harvest – which typically contributes around 30% of Brazil’s total corn crop and caters for much of the country’s domestic demand.

The southern state of Rio Grande do Sul, with its single corn crop, has already reported dry conditions cutting the state’s production, with that driving domestic corn prices higher in recent weeks.

That stoked trade worries that the country’s own increasing demand cannot be met from a record-breaking 101 million mt 2018/19 harvest, after a hefty export programme drained stocks, so the expectation of further dry weather ahead renewed worries over supply.

“Rio Grande do Sul’s harvest for the full season is forecast at 4.5 million mt, less than one month of (national) consumption,” a second market source said, citing government food agency Conab’s domestic consumption forecast of 70.45 million mt.

“Some traders are wondering about the likelihood of exporters turning corn into the domestic market by June or July,” the second source said, trimming the country’s potential export firepower.

Overnight, the moves lifted FOB Santos cash bids higher and pushed back offer levels, as bids for August and September loading gained around a cent to 36 cents over the September contract, while offers backed off sharply, rising from 37 cents to around 43 cents overnight.

“More than 70% of (total Brazil production) depends on the second corn crop, and this year the second crop is riskier because of late planting,” a third market source said, with a lot now riding on the key second crop, both in terms of exports and potential domestic demand.

“If our safrinha fails, there will be blood,” the source warned.