November 27, 2017

Brazilian Farmers Hope for better Corn Prices in 2018

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

Brazilian farmers are very concerned about current low corn prices, but they have hopes that things will improve in 2018. Brazil currently has a large carryover of corn that has kept a lid on domestic prices, but that carryover may become much smaller in 2018. Farmers have significantly reduced their full-season corn acreage and they are expected to produce a smaller safrinha corn crop as well in 2018 compared to 2017. The safrinha corn crop will account for approximately three-quarters of Brazil total corn production in 2017/18.

The future prices for corn at Brazilian ports are already indicating improved prices by mid-2018. Noticias Agricolas reported that according to Brandalizze Consulting, corn prices at Brazilian ports are currently in the range of R$ 29.50 to R$ 30.00 per sack (approximately $4.10 to $4.25 per bushel. But, for July and August delivery next year, prices are in the range of R$ 32.00 to R$ 34.00 per sack (approximately $4.50 to $4.80 per bushel).

Even with the prospect of improved prices next year, Brazilian farmers have been reluctant to forward contract their anticipated 2017/18 corn production. Normally, farmers would have forward contracted 20-30% of their corn by now, but the current amount of contracted corn is about half that level. Instead of utilizing forward contracting to purchase their inputs for their safrinha corn production, it appears that Brazilian farmers are utilizing their own resources to purchase seed, fertilizers, etc.

When transportation costs are taken into account, the current prices at the ports would translate to R$ 16.00 to R$ 17.00 per sack in the interior of Mato Grosso (approximately $2.30 to $ 2.40 per bushel). At these levels, farmers would need better than average yields in order to cover their production costs.

To encourage increased forward contracting in Mato Grosso, corn prices at the Brazilian ports would need to be in the range of R$ 36.00 to R$ 38.00 per sack (approximately $5.10 to $5.40 per bushel). That in turn, would translate to interior prices in Mato Grosso of R$ 20.00 to R$ 22.00 per sack (approximately $2.84 to $3.10 per bushel). At that level, farmers could generate a small margin from their corn production.

Brazilian farmers are pinning their hopes for a better corn prices on several factors including: a lower corn carryover in Brazil due to reduced production, potentially lower corn production in the U.S. in 2018, and increased Chinese corn imports. China has announced very aggressive plans for increasing the amount of ethanol blended into gasoline from the current 2-3% to 10%. That alone could increase the amount of Chinese corn imports to 10 million tons per year by the year 2020. Brazil of course, would like to supply the bulk of the Chinese corn imports just like they supply the bulk of Chinese soybean imports.