Low Brazil corn availability expected to remain through to June

The combination of low existing stocks, losses to Brazil's first corn crop, and an increase in global prices in response to supply fears stemming from Russia's invasion of Ukraine will keep corn availability lower than usual in Brazil until the second 'safrinha' corn crop starts to be harvested, trade sources have told Agricensus.

That will extend the period of tight availability in the country - one of the world's biggest corn exporters - through until late June or even July, trade sources said.

While it would normally be expected to have less corn available in the Brazilian market from March to May, the period between the harvest of the first and the second corn crop, trade sources say the volume is likely to be even lower than normal levels.

Brazil started the season with 8-9 million mt of corn in stocks, versus an average level of 15 million mt, with stock levels depleted by strong demand and poor growing conditions during last year's season.

This year's season has started with similar hot, dry conditions that mean the first corn crop has now been forecast at 20 million mt, some 7 million mt below initial expectations, Céleres consultancy analyst Enilson Nogueira told Agricensus.

Local consultancy Safras & Mercado calculates a similar picture, estimating the current availability of corn at 10-12 million mt.

That considered domestic demand of around 12 million mt, along with 2 million mt of exports for February and March and a 21 million mt first corn crop harvest.

Initial stocks this season were around 3.7 million mt, according to Safras, while last year they’ve reached 6.5 million mt.

Lessons

The last time the season started with this level of corn was in 2016 when initial stocks were at 3.8 million mt, the consultancy said.  

That coincided with a period when domestic prices spiked through the season, according to data from São Paulo university's agroeconomy unit Cepea that showed domestic corn prices averaged BRL44.5 per 60 kg bag in the 2016 calendar year - up nearly 52% versus 2015, and 46% higher than in 2017.

Amid the war in Ukraine, and fears that the conflict will have a profound impact on the new marketing year's production, activity in Brazil's ports has jumped while prices have increased globally due to the conflict’s potential impact on global corn availability.

Cepea again shows domestic Brazilian corn prices - already inflated by weather fears - had averaged BRL96.4/bag from the beginning of 2022 through to February 23, the night before Russia began its invasion of Ukraine. 

Since then, prices have averaged just over BRL100/bag, while Agricensus data shows spot premiums for physical cargoes of Brazilian corn on an FOB Santos basis averaged 73 cents over the front month contract through to February 23, averaging 169 after the invasion and peaking at just over $2/bu in the immediate aftermath. 

That led Brazilian producers to postpone sales, waiting for better opportunities and means the tight supply will likely now remain until the second corn crop harvest begins, in June.

“Until then, producers will hold on to their grain hoping for better prices,” Nogueira stated.

However, fierce competition from the US and - to some extent - Argentina may force the hand of farmers, particularly amid the return of lockdowns in some of China's biggest cities.

According to Paulo Molinari, an analyst from Safras & Mercado, Brazilian corn exports are not usually high at this moment of the year and remain focused in the second half of the year as Argentina's crop arrives in the market - even if in a lower volume.

Molinari also stated that demand has changed its focus from Brazil to the United States, as Europe - mostly Spain - is showing a willingness to import GMO traits to replace Ukrainian corn.

"There is some corn available, but it is not cheap, which led to a demand reduction in comparison to the last few weeks," he said.

That is a trend that could be extended if lockdowns in China, one of Brazil's biggest customers for soybean and meat exports, also dent demand.

Safrinha

Molinari expects the safrinha forward sales are at  24.8%, delayed in comparison to the same period last year, when 19% was sold in advance and last year 35.5% was already traded. 

With 80% of the second corn crop sown within the ideal period, Nogueira expects Brazil to harvest 85 to 90 million mt of corn this season, and putting the second corn crop this year roughly on par with Brazil's entire corn production last year.

The country’s food agency Conab also expects the second corn harvest to reach 86 million mt in 2022, a record volume and 42% increase versus last year’s 60.7million mt.

Safras & Mercado expects the second corn crop harvest to reach 83.3 million mt, 44% up from last year’s 57.8 million mt. "We will reevaluate it next week and don't be surprised if this number comes higher,” Molinari stated.  

That would put Brazil’s total corn output at around 115 million mt, 26.4% up from last year’s 91.4 million mt and in line with current USDA expectations of 114 million mt.

That will likely fuel a major export campaign, with Céleres expecting Brazilian corn exports to reach 38-40 million mt.

The volume is close to the 2019 41.2 million mt record volume and twice last year’s 20.5 million mt.

“It would not be surprising if shipments surpassed 40 million mt,” Nogueira added.  

Safras & Mercado forecasts Brazil’s corn shipments at 34.5 million mt.