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June 17, 2015

2014/15 Brazilian Corn Estimate Increased 2.5 mt to 81.5 Million

In their June estimates of the 2014/15 Brazilian crops, Conab increased both the soybean and corn estimates. The 2014/15 soybean estimate was increased 0.9 million tons to 96.0 million tons and the 2014/15 Brazilian corn estimate was increased 1.6 million tons to 80.2 million.

The bigger adjustment in the June report was for the safrinha corn crop. In the May report, Conab surprised the market by lowering the safrinha corn estimate. In the June report, they reversed course and significantly increased the safrinha corn estimate. The 2014/15 safrinha corn crop in Brazil is now estimated at 49.37 million tons or 1.5 million tons more than the May estimate.

The increase in safrinha corn production came primarily from higher acreage and a small increase in the projected yield. Conab is estimating the safrinha corn acreage at 9.32 million hectares or 245,000 hectares more than last month. If these estimates are realized, the safrinha acreage would be up 1.3% compared to last year and the total safrinha corn production would be up 2% compared to last year.

Even with these increases in safrinha corn production, Conab might still be underestimating the Brazilian corn crop. Mato Grosso is the largest safrinha corn producing state in Brazil and the Mato Grosso Institute of Agricultural Economics (Imea) is estimating the safrinha corn crop significantly higher than Conab. Imea is estimating the safrinha crop in Mato Grosso at 20.33 million tons or 2.4 million tons more than Conab's 17.88 million tons.

Both Conab and Imea have basically the same safrinha corn acreage in Mato Grosso, but their estimates of the safrinha corn yield are very different. Conab is estimating the safrinha corn yield in Mato Grosso at 5,461 kg/ha (84.1 bu/ac), whereas Imea is estimating the corn yield at 6,198 kg/ha (95.4 bu/ac) or a difference of 11.3 bu/ac.

In their latest report, the Mato Grosso Institute of Agricultural Economics (Imea) increased both the safrinha corn acreage and the yield projections for the 2014/15 crop. Imea increased the safrinha corn acreage in the state by 313,000 hectares to a new record high of 3.28 million hectares. The safrinha corn yield in the state was increased to 103.3 sacks per hectare (6,198 kg/ha or 95.4 bu/ac), which represents an increase of 10.8 bu/ac compared to 2013/14. The total safrinha corn production in the state is now estimated at 20.33 million tons or 14.7% more than last year.

The safrinha corn crop in the second largest producing state of Parana is also expected to do very well. Farmers in Parana have harvested approximately 10% of the 1.89 million hectares of safrinha corn and corn yields are exceeding expectations. The Department of Rural Economics in the state is estimating that the safrinha corn production in the state will set a new record at more than 10.3 million tons.

As a result, the 2014/15 Brazilian corn estimate was increased 2.5 million tons to 81.5 million. This now makes two years in row that the safrinha corn acreage is increased significantly as the corn harvest gets underway. It appears that there is something systematically wrong with both Conab's and Imea's methodology in how they monitor the safrinha corn acreage, especially in Mato Grosso. They just don't seem to be able to adequately assess how much safrinha corn is planted.

Farmers in Mato Grosso are in the early stages of the corn harvest and are reporting very good yields. In anticipation of a record large corn crop, domestic corn prices in Mato Grosso are already below the minimum guaranteed by the Brazilian government. Corn prices in Sorriso, which is located in central Mato Grosso, were R$ 13.00 per sack earlier this week or approximately US$ 1.90 per bushel (using an exchange rate of 3.0 Brazilian reals per dollar). Corn prices are expected to fall even further in the state as harvest pressure mounts.

The Brazilian government is expected to intervene to support corn prices as it has done in the past through a series of Pepro auctions where the government picks up the difference between the minimum price and the domestic price of corn. These auctions in the past have been very costly for the federal government and there is uncertainty about how aggressive the government will be to support corn prices. The general economic situation in Brazil is deteriorating in the face of rising inflation, rising unemployment, and rising deficits. The government has not yet announced any plans for Pepro auctions for corn producers.

The 2014/15 Brazilian soybean estimate was increased 1.0 million tons to 95.5 million. The last soybeans to be harvested in Brazil were in northeastern Brazil and that region ended up setting a new record for soybean production which represented an increase of 11.5% compared to 2013/14.