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March 31, 2016

Brazil Importing Corn for Livestock Sector in Southern Brazil

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

Brazil exported record amounts of corn in late 2015 and early 2016 and now in an unusual twist, Brazil needs to import corn to meet the demand of the livestock industry in southern Brazil. The livestock industry is concentrated in southern Brazil, but farmers in the region have been reducing their corn production in recent years in favor of more soybean production.

As a result, the livestock producers are now dependent on the safrinha corn production in central Brazil to meet their needs. Safrinha corn is produced as a second crop after soybeans and it now accounts for approximately two-thirds of Brazil's corn production. Unfortunately for the livestock producers, a sharp devaluation of the Brazilian currency last year led to tremendous increase in corn exports and the subsequent shortages of corn in southern Brazil.

The corn supplies in southern Brazil are so tight that some domestic corn prices in southern Brazil have reached as high as R$ 53 per sack of 60 kilograms or approximately US$ 6.50 per bushel. The domestic corn supplies will increase when farmers start to harvest the safrinha corn crop, but the harvest will not start until June. Even then, the corn will be harvested in central Brazil which is as much as 2,000 kilometers away from where it is needed in southern Brazil. In the meantime, livestock producers are scrambling to source enough corn to keep their facilities operating until the safrinha corn harvest begins.

As a result, Brazilian companies have now started to import corn from Argentina and Paraguay. Reuters reported last week that Brazilian companies have already contracted to import at least 250,000 tons of Argentine corn and the total amount of corn imported from Argentina and Paraguay into southern Brazil could reach 500,000 tons.

Corn imports from Argentina in 2016 should be the highest in 15 years. In 2001 Brazil imported 321,000 tons of corn from Argentina, but for most of the intervening years, the amount of corn imported from Argentina has been very small.

The current scarcity of corn is being driven by excessive corn exports. Brazil is expected to set a new record for corn exports exceeding 30 million tons. Just during the months of January and February, Brazil exported 10 million tons of corn with 2 million tons more during the month of March. The monthly domestic consumption of corn in Brazil is approximately 4.5 million tons.

The marketing year for corn in Brazil is from February through January and Brazil closed January 2016 with carryover corn stocks of 10.5 million tons. Those stocks were cut in half with the export of 5.5 million tons in February and they were reduced even further with 2 million tons of corn exports in March. Without additional imports from Argentina and Paraguay, Brazil runs a serious risk of running out of corn before the safrinha corn harvest begins in June.

The company Avicola GTFoods, which is located in northern Parana, announced earlier this week that they will import 90,000 tons of Argentine corn to sustain their production facilities in the state. The first shipment will be 27,000 tons with two more shipments by the end of May. The corn will come by vessel from Argentina which will be unloaded at the Port of Imbituba in the state of Santa Catarina. Food giants such as JBS and BRF have also indicated that they are in the process of importing corn from both Argentina and Paraguay in order to keep their production facilities operating.

Livestock producer organizations in Brazil are imploring the Brazilian government to adopt policies that will either increase corn production in southern Brazil or reduce the cost of transporting the corn into the region from central Brazil. One such proposal is to offer low interest production loans for farmers in southern Brazil for the purpose of producing corn. Another proposal is to construct a railroad from central Brazil to southern Brazil in order to reduce the cost of transporting the corn. If something isn't done, local officials fear that the livestock industry will start to migrate to where the corn supply is more stable resulting in closed industries and lost jobs in southern Brazil.