Forex, local demand leaves Brazil corn exporters mulling origin switch

Local feed demand and a stronger Brazilian currency could see trading houses that have export commitments to ship corn sell the grain back to the domestic market instead and supply overseas customers with grain from other origins.

A rise in local meat consumption due to a holiday season in Brazil, coupled with higher meat exports, has increased demand for feed, such as corn.

At the same time, the Brazilian real has strengthened almost 5% against the dollar in the past two weeks, opening up an unusual arbitrage that could see the price of Black Sea corn rise.

“On paper, whatever you can switch from South America you should put in Ukraine,” one Asia-based market source said, although he cautioned a wholesale switch to the Black Sea is unlikely as some regional trade houses can only take US or Brazilian supply.

“We heard from one of Brazil’s biggest co-ops that they are seeing international trade houses reverting their positions from exports to sell into the domestic market,” a Brazil-based source said, with strong domestic demand key in seeing traders consider that switch.

Brazil’s pig and poultry exports are on the rise as the onset of African swine fever across Asia has reduced local production.

Poultry exports from January to August reached 2.7 million mt, up 2.3% according to data from the country’s animal protein association ABPA.

Pork exports have risen even more sharply, up 13% over the same period to 466,000 mt according to the data released in September, with the increase having a knock-on effect for feed demand domestically.

More recently, the strengthening of the country’s currency versus the US dollar has also undermined farmers’ incentive to sell corn or soybeans, starving the export hubs of fresh supply and leaving FOB prices to firm sharply.

FOB offers rise

Offers for FOB Santos December shipment have risen from around 48 cents over December futures a week ago, to be heard at 65 cents over on Thursday.

One US dollar bought 4.18 Brazilian reais on October 18, but the passage of key economic reforms lifted growth expectations and saw the dollar’s buying power slip to 3.98 reais by October 30.

“This new currency reality stops all the origination of soybeans and corn here. Now farmers are more focused on planting soybeans and corn than actually selling due to the very low price in reais per bag,” a third trading source said.

Some exporters who have export commitments to fill now face higher domestic prices to secure supply, leaving a hefty imbalance – known as a countermargin – between the FOB levels they have sold at and the stronger domestic prices.

“For old crop 2019, we are talking about a 40 or 50 c/bu countermargin to originate corn versus the FOB prices,” a fourth source said, with the combination of firmer FOB prices and domestic demand likely to dent the record export pace that Brazil has maintained in recent months.