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While fighting the coronavirus, Brazil competes with U.S. corn exports

If the U.S. economy opens by summer, corn market could benefit, analyst says.

BUENOS AIRES, Argentina -- The final economic outcome of the coronavirus is still hard to predict. Most economies in the world have self-imposed large lockdowns that, in the majority of cases, do not have specific end dates. 

Some stay-at-home laws are more flexible than others. Because emerging market countries have more street labor than developed nations, an extended quarantine could impact Brazil harder than it would the U.S. 

China, where the pandemic originated, for instance, had an economic contraction of 6.8% in the first quarter of the year, according to official data. That is the first reduction of the Chinese economy – recognized by official numbers, at least – since 1992. And that can signal what could happen later in countries beaten on by the coronavirus.

In Latin America, where the pandemic arrived long after it did in Europe and the U.S., layoffs are already massive, but estimates are getting worse as they come. The International Monetary Fund has a GDP reduction forecast of 5.3% for Brazil and 6.3% for Mexico. The latter is the largest U.S. corn importer, while Brazil is the top U.S. agricultural competitor. The South American country’s economy had an early expectation of growing over 2% this year. For comparison, now the International Monetary Fund (IMF) sees a 5.9% drop for the U.S. economy.

For the specific case of Brazil, soybean exports and corn sales have been growing in the last few months. The African swine fever still favors demand for soybeans and hogs. Cow slaughtering, on the other hand, dropped by the millions in recent weeks. The shift is happening in consumption from beef to poultry. Other widely affected chains are cotton/textiles, flowers, fruits, and vegetables. Fuel consumption since stay-at-home laws started in Brazil dropped nearly 50%. The winners are rice, poultry, and hog producers.

“There are specific agricultural chains that depend on face-to-face meetings, like events and fairs, that have nowhere to sell right now,” says Professor Marcos Fava Neves, a global agribusiness professor at the University of Sao Paulo and visiting professor at Purdue University.

In the case of Argentina, there is a special impact on the soybean market because the soybean oil plants are part of the local government’s restrictions on production without a precise date for reopening.

Alexandre Mendonça de Barros, a noted consultant at MB Associados, located in Sao Paulo, said that the moment is unique for Brazilian corn and soybean exports due to the country’s competitiveness. 

“For the first time in many decades the Brazilian grain is more competitive than the U.S. grain. And I’m talking even in logistical terms,” states Mendonça de Barros.

For Mike Zuzolo, president of Global Commodity Analytics, a consultancy based in Atchison, Kansas, the Brazilian competitiveness is currency-driven and would be reverted. Brazil’s real value dropped over 20% in the year against the U.S. dollar. The Mexican peso, the Colombian peso and the Russian ruble fell more than the Brazilian real in the period. Zuzolo believes that the corn market can reverse the negative outlook if the U.S. economy reopens by the summer and has a strong driving season; it also needs a weakening dollar. 

“If we see restrictions being lifted in the coming days, I think we can come back and see rallies led by a weakening dollar,” analyzes Zuzolo. 

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