July 15, 2016

Corn stocks in Mato Grosso to fall to 7-day Supply

Mato Grosso is the largest corn producing state in Brazil, but hot and dry conditions since April have severely impacted the safrinha corn crop. Production estimates for the safrinha corn crop in Mato Grosso have been declining consistently for several months and many observers feel they will move even lower as the harvest progresses.

In their latest assessment of the corn crop in the state, the Mato Grosso Institute of Agricultural Economics (Imea) lowered the corn estimate to 22.2 million tons. Which is down 22.8% from the 26.1 million tons produced in 2014/15. Many producers in the state feel this estimate is still overly optimistic and they think the eventual corn production in the state could decline to 17 or 18 million tons or even lower.

Imea is estimating the corn yield at 78.4 sacks per hectare (69.0 bu/ac), which is down 27% from last year's yield of 108.6 sacks per hectare (94.4 bu/ac). The corn harvest in the state is approaching 40% complete with the corn most impacted by the dry weather yet to be harvested.

The corn produced in Mato Grosso either goes to the export market, is consumed by the livestock industry in southern Brazil, or is consumed locally within the state. The problem this year is that with the dwindling supplies, there will not be enough corn to satisfy all these demands.

Imea is estimating that corn exports from the state will be 12.84 million tons, which is down from 18.69 million tons last year. Corn shipments to other states will be down as well from 4.40 million tons in 2015 to 4.02 million tons in 2016. Imea is estimating the local consumption will be 3.35 million tons or down 1.8% compared to the 3.42 million tons last year.

Given all these reductions in consumption, Imea is estimating that the corn carryover stocks in the state will be just 70,000 tons, or approximately a 7-day supply for the livestock industry within the state! The market will never allow the supply to get that tight, so demand will have to be rationed by higher prices.

The average price for corn in the state during the month of July was R$ 27.63 per sack (approximately $3.80 per bushel), which was much higher than July of 2015 when it averaged R$ 15.50 per sack (approximately $2.00 per bushel). Corn prices are expected to move higher after the harvest is complete in about a month and the supply tightness becomes more apparent.

Given the potential for even lower estimates of the safrinha corn crop going forward, Imea's estimate for corn exports from the state are probably too optimistic. Exporters will more likely sell their limited supplies of corn to the domestic market for prices higher than what will be available on the international market.