Brazil: The Messiah of the Corn Market?

Article by: Hari Yellina

In the first 54 days of the year, the misery of this season’s summer harvest in South America dominated market news, as La Nina-induced drought conditions significantly damaged maize and soybean production. When Russia’s President Vladimir Putin launched the invasion of Ukraine on February 24, this quickly changed, catapulting Black Sea grain production and exports to the front pages of rural journals around the world. However, as the war drags on, concerns about Ukraine’s old-crop maize exports and new crop output are growing. This has re-ignited interest in Brazil’s grain output prospects. Late last year, Ukraine harvested a record maize crop, and exports were projected to be record-breaking in 2021-22 – before Putin ruined the party.

Because imports from Ukraine ports have been suspended indefinitely, global consumers have been compelled to seek alternate sources. The importance of Brazil’s second corn crop in the global supply equation has risen considerably as a result. This maize crop, also known as safrinha corn, accounts for around three-quarters of Brazil’s annual production. The first corn crop in Brazil is normally harvested between February and April. Due to its location near poultry and pork operations in the country’s south, it is primarily consumed domestically. Because freight to the export hubs from most of the major safrinha corn production locations is often less expensive than freight to the principal domestic consumption regions, the second corn harvest has traditionally been significantly more profitable.

The safrinha crop is often harvested in the months of June to August, just as the peak soybean export season begins to wind down, freeing up port capacity for corn exports. Seeding for this year’s safrinha crop is nearly complete. Moreover, it is said to be doing exceptionally well when planted in the right climate window. According to agribusiness consultancy AgRural, 94 percent of the crop has been planted, which is 20 percentage points ahead of last year at this time. About 60% of safrinha corn production is produced in the central states of Mato Grosso, Goias, and Minas Gerais, which finished planting earlier this month.

In most areas, the crop was put into ideal soil moisture conditions for early plant growth. Rainfall in March, on the other hand, has been more scattered and below average in many districts. Goias and Minas Gerais have deficits of more over 100 millimetres, while part of Mato Grosso has deficits of 50 to 100 millimetres. Rainfall shortages of this size will deplete subsoil moisture as corn plants grow and need more water, and will be damaging to productivity if widespread rains do not occur in the coming weeks. This occurs as farmers prepare to save soil moisture ahead of the dry season, which usually begins in the first week of May.

The wet season, on the other hand, tends to end a week or two earlier under La Nina weather conditions, which are lasting far longer than most experts projected. If that happens, there may be as little as three weeks left to replenish the soil profile with enough moisture to complete the crop. Despite a few storms in recent weeks, the weather in southern Brazil has been exceptionally dry. Rio Grande do Sul took the brunt of this season’s drought, which reduced soybean production by about half in the state. It does not, however, produce safrinha corn. However, Parana, which is grown in 94 percent of the country, is also suffering from drought.

A late plant, the drought, and a late-season cold wave slashed Parana’s safrinha corn output in half last year, despite the state being the country’s second-largest producer. A repeat performance would be disastrous for this year’s exports. CONAB, Brazil’s equivalent of the US Department of Agriculture (USDA), has reduced its initial corn crop production forecast to 24.3 million tonnes. However, the forecast for the crucial second crop was raised to 86.2 million tonnes. Total production is expected to be 112.3 million tonnes, somewhat below than the USDA’s forecast of 114 million tonnes. The first and second crop outputs in 2020-21 were 24.7 million and 60.7 million tonnes, respectively, for a total of 87.1 million tonnes.

Agroconsult, a private forecasting firm located in Brazil, predicted a substantially bigger second harvest of 92.2 million tonnes. In the next weeks, the corporation will inspect corn fields across the country to validate the projection, which is 52 percent greater than last year’s output. In terms of exports, Safras & Mercado have landed on 34.5 million tonnes, increasing 66 percent from last year. CONAB is currently at 35 million tonnes, up slightly from 36.68 million tonnes in January. However, this forecast was made before the invasion of Ukraine. StoneX, an international financial services firm, is far more enthusiastic about Brazil’s expanded position in the corn trade this year, predicting a 40 million tonne export projection, nearly double that of last year.