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August 7, 2020

Corn Prices in Brazil supported by Exports, Livestock, and Ethanol

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

Brazilian farmers are anticipating another profitable growing season in 2020/21 thanks to a weaker currency that supports exports and a strong domestic livestock sector that supports internal demand for corn and soybean meal. Current supplies of both corn and soybeans are very tight in Brazil and in fact, Brazil may need to import small amounts of both corn and soybeans to make it to the next harvest season.

Even though corn farmers in Brazil are in the midst of harvesting their 2019/20 safrinha corn crop, domestic corn prices in Brazil increased during the month of July. The safrinha corn in Brazil, which is planted after soybeans are harvested, accounts for more than 70% of Brazil's total corn production. Farmers in Mato Grosso have taken advantage of the strong corn prices to forward contract 41% of their anticipated 2020/21 production according to the Mato Grosso Institute of Agricultural Economics (Imea).

According to the consulting firm Itau BBA, Brazil entered the 2019/20 growing season with 10 million tons of corn stocks. Farmers produced 101 million tons of corn in 2019/20 and Brazil imported 1 million tons of corn, primarily from Paraguay. Corn exports are estimated at 35 million tons and the domestic demand for corn is estimated at 68 million tons leaving 8 million tons of carryover stocks, which is 2 million tons less than last growing season.

In addition to the strong demand from the livestock sector, more of the corn produced in central Brazil is being used for ethanol production. The consulting firm StoneX is estimating that Brazil will produce 28.2 billion liters of ethanol in 2020/21. They estimate that 25.8 billion liters will come from sugarcane (91.4% of the total), which is down 18.4% compared to last year. Approximately 2.4 billion liters will come from corn, which is 8.5% of Brazil's total ethanol production. The amount of ethanol produced from corn is up 46% compared to last year.

The percentage of Brazil's ethanol produced from corn was essentially 0% until June of 2017 when the first corn-based ethanol facility came online in the city of Lucas do Rio Verde in the state of Mato Grosso. Currently, there are at least 6 corn-based facilities operating with another half dozen under construction. Additionally, numerous sugar mills in Brazil have been retrofitted to utilize corn to make ethanol during the 3-4 months of the year when sugarcane is not available.