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Can Brazil Cover a U.S. Corn Shortage?

Note: João Carlos Kopp, is a grain broker in Brazil who offers his insight into that corn crop, for the season.

Every day we hear a lot noise about U.S. corn yield declines, with one side arguing that prices are overbought and killing the agriculture chain, while the other side talks about inventory shortages with a need for prices to rise.

The only thing we can do at this moment is assess how much of what we listen to and read across the world is true.

In the last month we heard a lot rumors about cheap corn in Brazil, and that is true, But when the prices start to surge at the Chicago Board of Trade, Brazilian corn makes an epic run higher due the hope that we will see an increase in our exports.

In an effort to make better decisions with information about the trade, I proceeded to do some in-depth research about Brazilian exports. Unfortunately, the Brazilian government doesn't provide simple information like USDA.

Everyone in Brazil and around the world that I talk to talks about corn exports, but this talking lacks solid research. This makes me nervous, so I bring to readers my review about last 12 years in Brazilian corn exports for perspective.

Below, I show a chart showing 10-year, 5-year and 3-year averages, including last year's exports, current exports and the 12 individual months of exports we had in history, along with the latest quarter (April to June).

In this chart I would like to point out our last year's exports, reaching good volumes from August, like the 3 years Average.

In 2010 and 2011 the Brazilian government held a lot of auctions to offer best opportunities to encourage exports of our corn in order to support prices for farmers in Rio Grande do Sul, Paraná and Mato Grosso.

I would like to make a point, just so you know, regarding corn prices in Mato Grosso prior to 2009 that were ridiculous, due to the long distance form port and bad logistics without good rail service. The majority of farmers were just planting corn to maintain their crop rotations. Believe me that they received prices around U$38/ ton ($0.96 per bushel) in northern Mato Grosso; yes my friends thirty-eight dollars a ton, incredible no? Yet, they continue to plant corn. This year the price in that region is up to U$164.00 ($4.16 per bushel).

Back to export data. This year Brazil expects to export 1.81 million metric tons (71 million bushels), down 21% from the 10 year average. That's down 30% from the 5-year average and 19% below the 3 year average. This could easily be explained by our severe drought in our first crops and the market's need to move exports to feed south Brazilian states.

To export 15MMT (590 million bushels) from 2011/2012 season would be a surprise. Even in the best year scenario we didn't reach these levels:

To make this table I considered JAN to MAR 2012 exports, fixing APRIL-JUN 2012 and using the best month in history for JUL to Dec 2012 and JAN to MAR 2013.

The final number in the best month's curve finished at 14.88 MMT (586 million bushels).

This year Brazil will export a record quantity of soybeans in the first half of the marketing year. This will require increasing our soybean and meal exports year on year and maintaining a price premium at the ports (spot market) high enough to keep soybeans a in the system.

To conclude I still think that it will be difficult to export that quantity based on our export history. I will be surprised if we reach these levels. Rather, it's more feasible for Brazil to export a number around 11MMT (433 million bushels or 4% more than our record in 2010 of 10.68MMT or 420 million bushels) and 13MMT (512 million bushels).

I hope to see and talk with readers in the Hospitality Tent at Farm Progress Show from 12 Noon to 1 p.m. on Tuesday, August 28 and from 10 to 11 a.m. on Wednesday, August 29.

Regards,
João Carlos Kopp.