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April 11, 2016

Domestic Corn Prices in Brazil Continue Strong

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Domestic corn prices in Brazil increased again last week with prices increasing as much as 6% last week in some of the principal production areas of the country. For example, in the municipality of Sorriso in Mato Grosso, which is the largest corn producing municipality in Brazil, corn prices increased 6.6% last week to R$ 32.00 per sack of 60 kilograms.

In Rio Grande do Sul, corn prices ended the week in the range of R$ 40.00 per sack with numerous locations in Parana at R$ 36.50 per sack and western Bahia at R$ 42.00 per sack for September deliveries. On the BM&F Bovespa exchange in Sao Paulo, the May corn contract closed on Friday at R$ 46.55 per sack with the September contract closing at R$ 36.80.

These high domestic corn prices have been supported by a very tight supply of corn in Brazil. Brazil has exported a record amount of corn leaving little corn left over for livestock producers in southern Brazil who must now compete with exporters for the dwindling corn supplies. The Brazilian government recently auctioned off 500,000 tons of state-owned corn in an attempt to relieve the situation and livestock producers in southern Brazil have turned to imported corn from Argentina and Paraguay to keep their livestock production facilities operating.

Everyone had been hoping that the tight supply situation would be rectified when the safrinha corn harvest begins in June, but how there is a new element in the mix - hot and dry weather in central Brazil that could impact the safrinha corn production.

Many areas of central Brazil have been hot and dry for at least ten days and there is little rain in the immediate forecast. A high pressure system positioned over southeastern Brazil has been blocking the progression of cold fronts into Brazil resulting in dry weather in central Brazil. The high pressure system is forecasted to break down sometime next week with the return of scattered showers in central Brazil.

By then, damage may have already been done to the later planted safrinha corn that will be pollinating and starting to fill grain during April. The earlier planted safrinha corn should be OK because it is further along in its development. It is the later planted safrinha corn that is most at risk.

The market has been expecting the safrinha corn to enter the market starting in June and that corn prices will start to decline when that occurs. If the safrinha corn crop ends up being disappointing due to the adverse weather, the decline in corn prices may not be as large as anticipated.

Some farmers in Mato Grosso have already forward contracted as much as 80% of their anticipated corn production and they are now concerned if they will have enough corn to fulfill their contracts. Safrinha cotton in Mato Grosso will also be at risk from the dry weather if it continues to persist.