Brazil's 2009-10 corn production will remain flat at 51 million tonnes (MT) with higher average yields expected to offset a decrease in summer crop area planted, according to a US Department of Agriculture attache report posted Nov 9 on the Foreign Agricultural Services Web site.

The Post reduces its 2008-09 corn export forecast to 7.2 MT due to weak export demand, increased worldwide supply, and a strengthening local currency. Wheat production for 2009-10 is revised downward to 5 MT as intense rains in key production states caused yields to drop. Wheat quality has deteriorated significantly resulting in an estimated 1.5 to 2 MT deemed feed quality while there are potential 2009-10 non-Mercosul imports of up to 3 MT.

 

The safrinha (winter crop) area planted is forecast to remain at 4.9 million hectares. The strong Brazilian currency is squeezing profit margins by reducing the value of exports for farmers; however, the cost of their inputs has dropped by 30 percent compared with last year.

 

The area planted for the summer crop is expected to decrease from 9.25 million hectares to 8.5 million hectares. A lower expected profit margin for corn compared to soy at harvest has encouraged a significant shift from corn to soy, particularly in the South. Contributing to the expected profit margin is a 30 percent lower production cost for soy compared to corn. Another factor encouraging the shift is that corn is a riskier crop than soy due to its more stringent moisture requirements. This factor resonates with farmers in the State of Parana who last year suffered significant corn yield losses due to drought conditions. Other factors contributing to a lower planted area are the current high corn stocks, internal prices below the government minimum price, projected record US corn harvest and anticipated recovery in Argentina.

 

Corn yields are projected to rebound from last year's drought-reduced level and with greater use of technology and inputs. In addition, the movement from corn to soy may result in higher average yields for corn since the high-technology producers will continue to plant corn while the low-technology producers will switch to soy. Finally, greater use of genetically-engineered (GE) seed should boost yields.

 

Brazil now has a total of nine GE corn varieties approved for commercial production, including a number of double stacked varieties which are resistant to both pests and herbicides. It's estimated that about one-half of the 2009-10 corn crop will be GE, with adoption in the South reaching 55 percent. As a result, producers are expecting to achieve yield gains of 8-10 percent. Considering that the 2008-09 growing season was the first year when GE corn seed could officially be sold in Brazil, the rate of adoption of biotechnology has been rapid.

 

Parana, the country's top corn producing state, is a prime example of this shift of area planted from corn to soy. In Parana, corn planting is estimated at 995,000 hectares down 20 percent from 2008-09 area planted of 1.27 million. In contrast, the estimated 2009-10 planted area for soy is 4.3 million hectares up from 4.07 million in 2008-09.

 

Good weather in the Centre-West allowed earlier planting of soy which means farmers will have sufficient time to plant the safrinha corn crop. The early rains increase the availability of area ready for planting next February.

 

Currently, international prices for corn are well below the government minimum price. The international price and minimum price in Brazilian currency continue to diverge as the Brazilian real continues to strengthen. Contacts estimate that the Brazilian government is using mechanisms to provide subsides of about US$30-40/tonne. Government corn purchases are expected to reach 4 to 4.5 MT, the majority destined for the export market.

 

Brazil continues to export corn more to the Middle East, South America and Central Asia than to its traditional EU market. Iran now accounts for about one-fourth of total Brazilian corn exports. Brazil has been able to capitalize on its freight advantage exporting to Malaysia, its fourth largest market, and Taiwan, its sixth largest market. To these and other markets, Brazil can trade via Panamax vessels that reduce transport costs.

 

Post now forecasts Brazil's 2009-10 wheat production at 5 MT, 17 percent below last year's 6 MT crop. Adverse weather conditions in key production states - Rio Grande do Sul and Parana - caused yields to diminish drastically from 2.48 tonnes per hectare to an estimated 1.84. Quality deteriorated significantly resulting in an estimated 1.5 to 2 MT deemed feed quality. Furthermore, if the Southern weather continues to be humid in November, the amount of damaged/low quality wheat could reach 2.5 MT. Parana, also the country's largest wheat producing state, has suffered significant production losses as production estimates have fallen to 2.8. MT, down 20 percent from initial estimates of 3.5 MT. The losses were greatest in the northern part of the state which had planted first. After receiving almost four times more rain than normal, the region reported a 40 percent drop in production. Overall, the state's 244 millimetres of rainfall measured in July (the highest since 1976) followed by continued rain in both August and September, have led to record high cumulative precipitation.

 

The moist environment increased the prevalence of fungal diseases. There have been numerous reports of brusone caused by the fungus Pyricularia grisea and gibberella. While almost 30 percent of the farms in the state needed chemical control for protection during the vulnerable flowering and grain-filling phases, the excessive rain and the intensity of the disease outbreak made disease management difficult leading to severe yield losses. These diseases have dramatically reduced the quality of the wheat and yields.

 

It is estimated that only 2 MT of Parana's 2.8 MT of wheat will be milling quality. A portion of the residual 800,000 MT of wheat will be blended with milling quality wheat and another portion will be destined for export markets, mostly likely using government subsidy mechanisms to move product. If the high level of humidity persists, there is a risk that the post-harvest wheat could be affected by disease and pests adding to yield losses and reduced the grain quality.

 

Rio Grande do Sul, the country's second largest wheat producing state, has also received excessive rain. However, unlike Parana which has completed harvesting, Rio Grande do Sul will not harvest until November, so it is too early to estimate the full extent of the damage.

 

Estimates of the need for wheat sourced from outside Mercosul range from 2 MT up to 3 MT. Brazil normally imports more than 90 percent of its wheat from Argentina, followed by Uruguay and Paraguay. However, given an estimated below-average Argentine crop and with Paraguay's crop suffering a similar fate to Brazil's due to excessive rains, traders will look to the United States and Canada. Paraguay's production is forecast to fall to 900,000 tonnes and only 40 percent of the wheat being milling quality making it unlikely to ship significant volume in 2009-10.

 

There have been reports that the United States and Canada have requested wheat export quotas. However, when asked, a Brazilian government official noted that there are no negotiations on a quota regime in lieu of import tariffs at this time.

 

It is expected that due to pressure from producers and cooperatives, the government will issue subsidies (through auctions) to commercialise much of the estimated 1.5 MT of feed wheat. The subsidies will have to be sufficient to allow the wheat to compete on the international market as it will not all be absorbed by local demand from the poultry industry.  The international market for feed wheat is around US$130 per tonne FOB (freight-on-board) origin. So, the subsidy amount will be the difference between the market price and the government support price at US$277 per tonne.

 

The GOB announced on October 22, 2009, that it will auction 700,000 tonnes of wheat through the Premio de Escoamento de Produto (PEP) programme. This programme provides the minimum guaranteed price to producers and cooperatives by paying the difference between the minimum guaranteed price and the market price. The objective is to supplement the supply of commodities in areas of the country considered to be deficient in agricultural production, such as the Northeast of Brazil.

 

The government does not have the obligation to provide the minimum price if the quality of the wheat is below a test weight of ph78. Sources note that the government is already refusing to pay the support price.