Brazil’s corn woes deepen as crop failure fears stalk Rio Grande

6 Jan 2020 | Tim Worledge

Fears that Brazil’s Rio Grande do Sul state could experience a corn crop failure after a prolonged period of dry weather have provided support to the country’s already high domestic prices, and prompting some market participants to anticipate a cut to production forecasts.

The state, the country’s southernmost that has borders with Argentina and Uruguay, is a significant domestic corn producer.

It is also home to a large livestock industry with much of the sector experiencing significant increase in demand as it strives to make up for a shortage in China’s pork production.

“For the domestic market, the big issue is regarding our southern state Rio Grande Do Sul… it’s a big player for soy, but not for corn (production). Instead, it is a big corn consumer due to the meat industries,” one market source told Agricensus.

“There is concern with the development itself – it’s too dry. It will make interior prices even firmer, at least for the summer crop,” a second source said.

Brazil’s corn production is typically divided into two main bands – a first, summer corn crop that accounts for much of the country’s domestic demand, followed by a second, larger corn crop, known as the safrinha.

Huge producing states like Mato Grosso and Parana plant the second corn crop on land that has just harvested the country’s soybean crop, with the safrinha tending to provide the bulk of Brazil’s corn production and the vast majority of its export capacity.

Typically, the first corn harvest averages between 25 and 30 million mt, with the safrinha recently accounting for another 70 to 75 million mt in production.

Rio Grande do Sul is expected to produce around 6 million mt of corn from a first crop of around 26 million mt, making it the most significant producer in the first round of production.

“Rio Grande has faced a severe drought since the last half of November, so corn over there is about to fail, slashing domestic corn availability,” the first source said, leaving consumers in the state to turn to resupply from Argentina and Paraguay – two countries that have also suffered dry weather.

“This is frightening the market and strengthening domestic prices,” the source said.

Brazil’s corn sector is coming off the back of huge 2018/19 production, with some estimates expecting over 101 million mt of corn to have been grown.

With Argentina also growing a huge harvest, the two nations have been locked in a battle for exports and have dominated destination markets for much of 2019, fuelling a record-breaking export pace.

But fears that the country has oversold exports have already been compounded by a surge in domestic demand from a huge and growing livestock industry and burgeoning investment in corn-based ethanol production.

According to Brazil’s agriculture university, Cepea, domestic prices for 60 kg bags of corn reached BRL48.91/bag ($200.75/mt) on Friday – the highest price on a reais basis since May 2016, according to Cepea data.

Later in the day, local analysts cut their outlook for the state's crop by up to 20%, spurring another raft of support as domestic B3 corn futures set new records of BRL50.95/bag ($209.50/mt).