In Brazil Low Prices and Large Stocks Impact Corn Producers Апрель 6, 2017

Highlights

Record corn production at 93 million metric tons (mmt) and low commodity prices will increase corn stocks in 2017/2018 and could encourage government intervention. 2017/2018 wheat production is down on low prices, while 2017/2018 rice production is higher on increased area.

Wheat

2017/2018 Wheat Supplies: 2017/2018 wheat area is forecast to decrease slightly to 2 million hectares (mHA) due to low prices and higher costs of production. Production is also forecast lower at 6 million metric tons (mmt) on the reduced area. A small amount of area may move to canola production, due to high prices for canola in the state of Rio Grande do Sul. In November 2016, wheat prices fell below the government-set minimum prices, triggering government intervention with two domestic support programs. It’s anticipated that prices will rebound above the minimum for the next crop year, based on lower production.

2017/2018 Wheat Trade:2017/2018 imports are expected to decline three percent from the previous year to 6.5 mmt. 2016/2017 imports are forecast to remain about the same at 6.7 mmt. Brazil needs to import high quality wheat, usually from Argentina or the United States, to blend with their domestic wheat in order to meet the baking specifications for the type of bread that is most widely consumed in Brazil. The United States gained market share in 2016 and supplied 18 percent of the import market, despite facing a 10 percent tariff.

2016/2017 wheat exports are forecast at 1.5 mmt, a 40 percent increase due to government intervention. In November 2016, the government got involved when prices fell below the minimum price. Because millers are fully supplied, nearly all of the wheat supported under the government program in the state of Rio Grande do Sul was exported. 2017/2018 exports are expected to return 2015/2016 levels, without government intervention, at 1 mmt.

2016/2017 Wheat Consumption: 2016/2017 wheat consumption is expected to increase 1 mmt from the previous year to 11.5 mmt due to an improving economic situation and a growing use of wheat for feed in 2016. Feed wheat in 2016/2017 is estimated at 700,000 mt, up 40 percent from the previous year due to high domestic corn prices in the last half of 2016. 2017/2018 consumption is expected to decrease slightly to 11 mmt based on reduced feed use and diet trends.

Corn

2016/2017 Corn Supplies:2016/2017 planted area is expected to increase to 17 mHa due to increased second “safrinha” corn plantings. High domestic prices in the last half of 2016 incentivized producers to plant more. 2016/2017 production is estimated at a record 93 mmt, based on good first crop yields and the second crop being planted during the ideal planting window. The second crop accounts for about two thirds of the total corn crop and is planted directly after soybeans are harvested. If the rains in April are well distributed, the second “safrinha” corn crop will see good yields. 2016/2017 ending stocks are estimated at 11.1 mmt, a 70 percent jump due to the anticipated record crop. Because of a glut of corn on the global market, prices will likely fall below the minimum government-set price when the second crop is harvest in June/July. This could possibly force the government to intervene with a stocks acquisition program which would further increase stocks, but reduce the price fluctuations seen in 2016. 2017/2018 area is expected to decrease to 16 mHA as lower prices from this year’s record crop incentivize farmers to switch to a more profitable crop. Production is forecast at 85 mmt, reflecting the anticipated lower prices.

2016/2017 Corn Consumption:2016/2017 corn consumption is estimated at 59 mmt, a one percent increase from the previous year based on the growing poultry and pork sectors. Meat exports are currently being impacted by the “Weak Meat” scandal, which closed down 21 meat processing plants due to allegations of bribery that allowed tainted meat onto the market. However, this shouldn’t have an impact on feed over the coming year.

While most of Brazil’s cattle are grass fed, the number of cows using corn as feed is growing slowly. 4.01 mmt of corn was used in feed lots for dairy or beef cattle in 2016, a two percent increase from 2015. This trend may continue as the price of agricultural lands stay high and domestic corn prices stay low.

Corn ethanol is one percent of total ethanol production. In April 2016, the Brazilian company Fiagril and the U.S. based Summit Agricultural Group broke ground on Brazil’s first corn-only ethanol plant. The new plant in the largest corn producing state of Mato Grosso is expected to come online in mid- 2017. Currently, any corn ethanol is processed in “flex” plants that can process both sugarcane and corn. Corn ethanol can be profitable for large vertically-integrated farms in Mato Grosso, where corn prices are low. Despite some growth in the feed and ethanol sectors, Brazil will still have ample supplies that will not be absorbed by domestic consumption. Stocks are expect in increase sharply, but limited on-farm storage may force producers to choose between storing either corn or soybeans, as both are record crops and the current pace of commercialization for soybeans is slow. Some farmers may opt to use silo bags as they wait for higher prices.

2016/2017 Corn Trade:

2016/2017 exports are expected to more than double from the previous low year to 30 mmt, based on abundant supplies. The exchange rate is important for Brazilian exports, as the stronger the dollar, the more local currency producers receive. In 2016, the Brazilian Real strengthened against the dollar, making exports less profitable. But with a record crop, producers will need to decide whether to sell at low prices, or invest in storage with the hope that the dollar will strengthen. Iran, Vietnam, and Japan currently account for half of Brazil’s export markets, but Brazil is actively seeking to gain market share in Mexico, which is traditionally supplied by the United States. 2017/2018 exports are forecast to decrease slightly to 28 mmt on a smaller crop.

2016/2017 Imports are estimated at 600,000 mt as the import market returns to normal after the previous year’s 3.4 mmt imports due to the drought affecting the second “safrinha” crop and many farmer forward contracting their corn early in the season. 2017/2018 imports are forecast at 500,000 mt.

RICE

2016/2017 Rice Trade: 2016/2017 imports are estimated at 700,000 metric tons, a 22 percent decrease based on a larger domestic supply. Most rice imports are supplied by Brazil’s Mercosul partners, Paraguay, Uruguay, and Argentina. 2017/2018 imports are expected to remain the same at 700,000 mt. 2016/2017 exports are estimated slightly higher at 800,000 mt, based on growing yearly trends. Senegal, Nicaragua, and Venezuela were Brazil’s three largest markets in 2016. In Nicaragua, Brazil has consistently taken market share from the United States over the last five years. 2017/2018 rice exports are forecast 12 percent lower at 700,000 mt on higher stocks, although Brazil is actively seeking a market in Mexico, as Mexico looks to reduce its dependence on U.S. grain.

2016/2017 Rice Consumption: 2016/2017 rice consumption is up slightly from the previous year due to population growth. 2017/2018 consumption is expected to stay the same, offset by population growth, as some consumers may eat less rice in favor of other starches.

Government Support for Commercialization and Export:

In 2016, government support was only used for wheat. Total government support of 453,000 mt, valued at R$78 million (USD $26 million) was much higher than the previous year as a result of low prices due to large supplies. Two programs were used to support wheat in 2016:

• Premium for Product Outflow Program (PEP): Through this program, the government pays the difference between the prevailing market price and the minimum price of the product to the buyers. The federal government, through the Ministry of Agriculture (MAPA)’s National

Company of Food and Supply (CONAB) conducts public auctions to set a premium for buyers of a given product. These buyers then contact producers interested in selling their production at the current minimum support price. Buyers must transport the product to the allowable destination established by the program.

• The Equalization Premium Paid to the Producer (PEPRO): PEPRO functions similar to PEP but the premium is granted to the farmer or cooperative which sells the product. The government pays the difference between the market price and the minimum price directly to the producer once the sale has been completed and the proof of sale to an allowable destination is received.

Of the two programs, PEPRO was used more in 2016, supporting 405,000 mt valued at R$69 million (USD 23 million). PEP supported 48,000mt valued at R$9 million (USD 3 million).

The government has the opportunity to update the minimum price once a year, and the price varies by commodity and classification, and by region of the country. This typically takes place in May/June.