February 21, 2017

Cepea: Potential record of Brazilian corn harvest could push down quotes

Brazil's corn prices dropped in most regions surveyed by Cepea in the first fortnight of February, mainly due to expectations for higher supply worldwide and in the country, Cepea reported.

Purchasers were retracting and waiting for bigger price drops. The most significant drops were observed in the Brazilian regions where harvesting of summer crop had started.

In Campinas (SP), the ESALQ/BM&FBovespa corn Index decreased 1% between January 31 and February 15, closing at BRL36.04 (US$11.76) per 60-kilo bag on February 15. Higher supply in SP is expected between the second fortnight of February and the first fortnight of March, which limits immediate corn availability. In addition, price rises of freight and preference for soybean flow to ports hampered the entry of corn from other states in that region.

In a report released on February 9, Conab (National Company for Food Supply) revised up estimates for corn production in Brazil to 87.4 million tonnes. If this volume is confirmed, it will be the largest output in all Cepea series. Larger production is mainly due to area increases in the second crop corn, estimated at 11.03 million hectares. So far, productivity has been similar to that in the last five years, and production may reach 58.6 million tonnes.

For the first crop, production estimates were revised down, from 28.8 million tonnes in January, to 28.4 million tonnes, but still 11.5% higher than that last season (2015/16). Rises were due to the 5.6% production increase in the central-southern states in Brazil. In the northern and northeastern regions, on the other hand, corn areas were allocated to soybean, according to Conab data.

For domestic consumption, Conab expects an increase of 2.7 million tonnes, to an estimated amount of 56.1 million tonnes. Importations are supposed to be 500 thousand tonnes. If Conab estimates are confirmed, Brazil will have a surplus around 39.5 million tonnes in the 2016/17 crop to export (gap between initial inventories, output and imports and domestic consumption), an increase of 48% compared to that last season. With higher corn supply, Brazil is expected to export 24 million tonnes in the 2016/17 crop, 27% up compared to the volume shipped last season.

For exports to resume good pace and reach 24 million tonnes, Brazil needs to further increase price competitiveness in the international market. This scenario is favorable to purchasers, who expect new price drops, based on favorable weather benefiting the development of crops and supply increases.

With good weather in Brazil, growers could confidently proceed with fieldwork. In São Paulo, smaller rain amounts and warmer days allowed harvesting to advance, according Cepea collaborators. In Rio Grande do Sul, harvesting was at a fast pace, reaching 35% of the area on February 9. In Paraná, until February 6, harvesting had reached only 3% (Seab/Deral).

Growers of the second crop, however, rushed to sow corn, since rains in previous weeks reduced the ideal sowing period, which ends at the end of February. In Mato Grosso, Imea indicates that 26.69% of the area had been sown until February 3. In Paraná, Seab/Deral indicates sowing had reached 10% on February 6.

For Brazilian exports in January, 1.45 million tonnes of corn were shipped. Thus, exportations totaled 18.87 million tonnes in the 2015/16 season, a volume (18.5 million tonnes) slightly larger than that based on the estimates of Conab, but much smaller (30.18 million tonnes) than the record last season.

- Cepea-Brazil