Brazil trade mulls US corn arbitrage as domestic prices surge

22 Nov 2019 | Tim Worledge

Rampant strength in Brazil’s domestic market could open a rare corn arbitrage from the US into the South American corn powerhouse – a reversal of a flow that saw Brazilian corn head north earlier in the year.

“Some guys are wondering about importing US corn here into Brazil. It may be some speculation, but this is something to pay attention to,” one Brazil-based trade source said.

“It seems to be the rumour du jour, and I think it’s just tyre-kicking,” a US-based source countered.

But the two origins have seen a significant reversal of fortunes in recent weeks as Brazil’s record-breaking export season has ended with an upward surge in domestic and FOB prices.

“Maybe people are already doing the maths – US corn is $5/mt cheaper than Brazil. Maybe it makes sense,” a third market source said.

US Gulf APM-15 FOB corn prices were assessed at $173/mt on Friday, versus APM-14 FOB Santos at $178.25/mt, according to Agricensus data, but any move between the two nations would not be straightforward as US corn is subject to duties.

That makes Argentina a more likely option in the event that Brazil does import corn, although Brazilian market sources pointed out that imports into the North Northeast region could be feasible.

“For the northeast part of Brazil it would make sense because freight from Argentina is more expensive,” the first source said.

“Since Mato Grosso does not have any more corn and states that still have corn don’t want to sell below BRL50/bag, importing from the US could make sense,” a fourth market source said.

Earlier in the year, US meat company Smithfield capitalised on low Argentinian and Brazilian corn prices to book imports into the east coast of the US.

This was in view of atrocious weather, which stymied US corn planting and raised fears that the country could face a much smaller-than-expected harvest.

However, since then both Argentina and Brazil have experienced record export programmes that have drained their record harvests to leave both countries looking spent.

Meanwhile, Brazil’s domestic prices have subsequently ramped up as demand from the meat sector has kicked in.

Against that, US corn planting has delivered a larger-than-feared harvest, with the latest USDA outlook expecting the country’s harvest to top 340 million mt.