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Brazil Needs U.S. Corn
SAO PAULO, Brazil -- With the dollar appreciating, Brazilian corn has become more competitive abroad and has driven overseas sales of the grain. However, the record exports have dropped national stocks and created a severe supply crisis.
Ironically, Brazil has gone from a net corn exporter to a net corn importer. It is trying to source corn from neighboring South American countries. Yet, U.S. corn is needed, due to the large shortages.
Corn prices have risen sharply in the domestic market and, given that 70% of animal feed comprises corn, poultry and pig production are threatened. “Pig raising is the hardest hit. Many producers are giving up the activity,” says Losivanio Luiz de Lorenzi, president of the Pig Raisers´ Association of Santa Catarina (ACCS).
The supply crisis is so serious that poultry and pig producers are sourcing corn from other markets. In May, Lorenzi visited Paraguay and negotiated the first batch of 1,000 tons of Paraguayan corn for import. “It was cheaper to import it from Paraguay. We managed to buy corn at US$ 160 per ton, while national corn would have cost US$ 267 per ton,” stated Lorenzi.
The first shipment is set to leave Paraguay on June 20, and Lorenzi envisions further purchases. “This first batch was just a test. We shall go to Paraguay again this month and seal further contracts. Everything hinges on the price of corn and on the exchange rate,” says Lorenzi. “Some companies are already sourcing corn from the U.S.”
The situation is the same in other regions of Brazil. In July, the Poultry Growers´ Association of Espírito Santo State (AVES) is to take delivery of 25,000 tons of corn imported from Argentina.
“We were obliged to seek alternatives for corn supply”, affirmed Nélio Hand, executive director of AVES. According to Hand, whereas Brazilian corn is currently sold in Espírito Santo for around R$ 60 per bag (US$ 7.32 per bushel), the association paid R$ 53 per bag (US$ 6.46 per bushel) for the imported Argentinian corn. “There has been uncontrolled exporting of corn, and now we are seeing a highly opportunist speculative market,” says Hand. “Clearly, corn producers need to make money, but this segment is profiting to the detriment of other sectors.”
Up to May 2016, Brazil imported 378,260 tons of corn. The volume recorded in the first five months of the year already exceeds total imports for 2015 of 369,530 tons. Corn imports are up 170% on volumes for the January-May period last year, when Brazil imported 139,880 tons of the grain.
In the case of exports, from January to May this year, 12.2 million tons were exported, a 139% increase on the 5.1 million tons exported during the same period in 2015.
Low corn stocks
According to estimates by INTL FCStone consulting, 2016 began with stocks of 4.3 million tons. “Factoring in lower exports this year, our estimate is stocks of 2.5 million tons at the end of the 2015/2016 harvest. For a market the size of ours, this is a really low figure,” says Ana Luiza Lodi, corn analyst of INTL FCStone. “With this situation, we have gone from major exporter to importer of corn. But I believe that the winter harvest should relieve the situation as of July, and we hope more grain can be channeled into the internal market.”
Rising corn price hits poultry and pig production
In Santa Catarina, corn cost around R$ 27 per bag in January (US$ 3.29 per bushel). Since then, domestic prices have soared, with the grain fetching over R$ 56 per bag (US$ 6.83 per bushel) in the region at the beginning of June. “We are seeing losses of around R$ 100 [US$ 28.60] per pig,” says Lorenzi, president of ACCS. “It is a desperate situation. Word is that corn may rise to R$ 70 per bag (US$ 8.54 per bushel), and now the price of soybean meal is also higher.”
With the crisis, the general reaction of the poultry and pigs sectors is a slowdown in operations. The industry is downsizing operations in order to cut costs through compulsory vacations for employees and even closure of factories.
The Aurora Foods Central Cooperative of Santa Catarina is to cease running one of its chicken slaughter shifts as of July. Another example is BRF, which is shutting down a slaughterhouse located in the state of Goias and suspending operations in another factory. Independent producers have been suffering for months.
“There has been a reduction in the number of pens,” says Nélio Hand, of AVES. “Pig producers are sending animals for slaughter earlier, and there has also been early disposal of commercial layers.”
According to Augusto Maia, animal protein researcher from the Center for Advanced Studies in Applied Economics (CEPEA), the Brazilian economic crisis aggravates this scenario. “Because of the recession in the country, there is also a decline in demand for meat and excess of the product in Brazil,” says Maia.
He holds that as a consequence, poultry and pig producers have been unable to pass their increased costs on to consumers. “No end to the crisis is in sight. Balance will be restored only when poultry and pig production costs fall,” affirms Maia. “Yet the dollar remains high, driving corn exports. Corn producers are unwilling to stop exporting.”
Government moves to avert the supply crisis
To date, the Brazilian government has auctioned off 162,000 tons of corn from public stockpiles and pledges to release a further 500,000 tons to regulate the market. The Federal government also lifted tax on imported corn, previously subject to a tariff of 8%.
“We have 70% of corn production from the Mid-West presold to the international market. With overheated internal trade, the product is being repurchased to supply the domestic market,” affirmed the secretariat of agricultural policy of the Ministry of Agriculture, Neri Geller, in an official statement.
All sources consulted by Successful Farming-Brazil stated that the volume of corn auctioned was insignificant given the level of national consumption.
“This is an ad hoc action that will help few producers,” says Maia from CEPEA. Another criticism is that each producer is entitled to purchase a maximum of only 6 tons of corn. “This is a very low quota that fails to reflect the needs of poultry and pig raisers,” says Lorenzi.
* Calculations made with an exchange rate of R$ 3.49
Written by Darlene Santiago, Editor of Successful Farming-Brazil