How recent corn losses will impact Brazilian exports in 2020?
The new year has started with crop woes in Brazil. No, I am not talking about soybeans, my favorite subject here and everywhere. I am talking about corn – the first corn crop, which has been damaged by hot, dry conditions in some southern producing areas.
And now you might be questioning whether a crop failure in Brazil could result in weaker exports here and, consequently, in more sales of US corn in 2020. That is a fair question. But the answer is no. The problems that Brazil’s first corn crop faces right now will not impact Brazilian exports.
As I have already explained a few weeks ago right here in this column, Brazil grows three corn crops a year. The first crop is harvested from January to May and represents about 25% of Brazilian total corn production. It is grown in states where weather conditions do not allow a second corn crop – which is planted from January to March, right after the soybean harvest.
In early December, the 2019/20 first corn crop production was projected by AgRural at 26 million metric tons, slightly higher than what Brazil harvested in the 2018/19 season (25.6 million metric tons). A spell of hot, dry weather in December and early January, however, took a toll on yields in Rio Grande do Sul, Brazil’s southernmost state and the top first corn crop producer.
Last week, AgRural cut Rio Grande’s production forecast by 22%, to 4.3 million metric tons – the smallest crop since 2011/12. And new cuts are likely in February if weather conditions do not improve in the state. For other states, where the crop develops well so far, AgRural made only minor adjustments to the forecasted yields. For now, the Brazilian first corn crop production is seen at 24.8 million metric tons, 0.8 million down from last year.
But why did I say that those problems that southern Brazil is experiencing now will not impact our corn exports? That has to do with meat production and logistics.
The first crop is grown in states that are big corn consumers. Fifty percent of Brazil’s pork and chicken meat is produced in the three southern states (Rio Grande do Sul, Santa Catarina and Paraná). Rio Grande do Sul alone represents about 13%.
That’s why Brazilian corn exports heavily rely on Mato Grosso’s production, a state located in central Brazil whose corn is grown as a second crop, harvested from June to August. Nevertheless, a crop failure in the South should result then in weaker exports, since Mato Grosso and other states would probably sell more corn to Rio Grande do Sul, leaving importers like South Korea, Japan and Vietnam to the US and other countries, right? Wrong.
First, because Mato Grosso exported so much in 2019 that now it has run out of corn and will have another harvest only in the second semester. Second, because importing corn from Argentina makes much more sense for Rio Grande do Sul than buying corn in Mato Grosso or other Brazilian states, because Argentina is closer and has cheaper corn.
Brazilian corn exports are likely to fall in 2020, since it will be really hard to beat the massive record established in 2019, when the country shipped 43.2 million metric tons and became, at least for a brief moment, the world’s number one corn exporter. But the reduction expected for 2020 does not have anything to do with Rio Grande do Sul’s crop failure.
Brazil’s exports will depend on the second crop production size, the appetite from the domestic market (still buoyed by a heated meat production to meet China’s demand) and the return of the US to the game after failing to export normal amounts in 2019. All themes for future columns here.