BRASÍLIA: Brazil’s soaring corn prices appear to have reached their peak, analysts say, as the looming arrival of the second crop promises to ease tight supplies. Corn prices in Brazil have been soaring, after heavy exports depleted domestic stocks, ahead of the main safrinha, or second crop, harvest. According to the Brazilian economic think-tank Cepea, corn prices in Sao Paulo have reached as high ast R$50 per kilogramme, or $6.40 a bushel in recent weeks.
“In Brazil, domestic corn prices began 2016 at record-high levels, despite ample global supply and pressured international prices,” said Rabobank. “Pushed by quickly rising exports and the devaluation of the Brazilian currency, not even the traditional seasonal pressure from the summer harvest has been able to bring down cereal prices in the domestic market.” Brazil exported 5.4m tonnes of corn in February, five times the pace of exports over the same period a year ago.
And forward sales of the safrinha crop, which makes up the bulk of Brazil’s exports, has been running well ahead of the historical pace. 26% of the crop has been sold already, compared to a historical average of 5%, Rabobank noted. The pace of exports is shrinking local stocks. Conab, the Brazilian supply agency, has forecast corn stocks to drop by 35% by the end to 2015-16, to 6.5m tonnes
Demand from the domestic livestock sector has also been boosted by the weak real, which is supporting meat exports. “Livestock producers in southern Brazil have been complaining bitterly about the very tight supply of corn and the resulting high domestic corn prices,” said analyst Dr Michael Cordonnier.
Corn makes up about 60% of the animal feed supply in Brazil. But Rabobank said that prices may have reached their peak, noting that “downside risks seem more justified, especially against a rise in prices that goes against the historical seasonal trend”.
Rabobank warned that continued high corn prices in Brazil are “highly unlikely in the medium term”. But the bank noted that even if prices come of their peak, the scenario still suggests “pricing levels that are considered quite satisfactory by producers,” and the bank expects the real to remain weak, supporting farmer incomes. “It looks like domestic corn prices in Brazil may have peaked,” said Dr Cordonnier.
“As a result of the very high prices, Brazilian corn is losing its competiveness against corn from its two main competitors – the United States and Argentina.” “It is possible that increases in international stocks may press world prices and result in a cooling of domestic corn prices in Brazil,” he said. And the squeeze in corn supplies in Brazil’s southern livestock heartland has actually encouraged the net-corn exporter to look overseas for supplies.
500,000 tonnes are to be imported to Southern Brazil before the start of the second crop harvest, Dr Cordonnier said. These fresh imports, along with the impending safrinha harvest, would likely bring prices down, he said.
