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May 13, 2016

Strong Corn Prices in Brazil could result in "Washouts" in late 2016

Brazil front-loaded their corn exports to such an extent in late 2015 that the country is now running out of corn while they wait for the safrinha corn harvest to start in June. As a result, Brazil is importing corn from Argentina, Paraguay, and a little from the U.S. Even with these imports, it has not been enough to stem the increases in the domestic price of corn in Brazil.

The price of corn at the city of Campinas in the state of Sao Paulo is currently R$ 49.50 per sack or US$ 6.50 per bushel, which is 90% higher than this time in 2015. Corn prices are even higher in northeastern Brazil, surpassing R$ 50 per sack. Corn prices are expected to soften somewhat when the safrinha corn harvest gets underway, but not by very much.

The safrinha corn crop is shrinking on a daily basis due to hot and dry weather in central Brazil and the market is worried that it will not be big enough to drive down domestic prices. The September/16 contract on the BM&F/Bovespa exchange in Sao Paulo is trading at R$ 41.97 per sack, which is 39% higher than September/15.

In their May Crop Report, Conab warned that there may be "washouts" of Brazilian corn export contracts during the second half of 2016. They commented that the supply of corn from the safrinha crop may not be large enough to drive down domestic corn prices. Therefore, exporters may buy back their export contracts and sell the corn instead to the domestic market where it is much more profitable.

In their May Report, Conab lowered their estimate of the safrinha corn crop by 4.2 million tons. In April they estimated the safrinha corn crop at 57.1 million tons, but that was lowered 4.2 million tons to 52.9 million tons in May. It is possible that Conab will lower their estimate of the safrinha corn crop even more in subsequent reports.