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May 28, 2015

Forward Selling of Corn in Brazil Remains Slow

The weather for the safrinha corn crop in Brazil has been good for the entire growing season and the total safrinha production could be as high as 50 million tons or more. A few isolated fields of safrinha corn have already been harvested, but the main harvest will occur during June and July. Domestic prices for corn in Brazil have been falling in anticipation of a record large safrinha corn crop.

As a result of the falling prices, Brazilian farmers have been slow sellers of their anticipated 2014/15 corn production. According to estimates from Safras & Mercardo, farmers in Mato Grosso have sold 25% to 30% of their anticipated corn production compared to 40% in 2014 and 60% in 2013. In Parana and Mato Grosso do Sul, the forward corn sales are 20% to 25% compared to 30% to 35% in 2014. Even the sales of the full-season corn, which has already been harvested, has been slow as well.

End users have put off purchasing corn in anticipation of even lower prices when the safrinha corn harvest gets underway. According to Cepea, which tracks domestic commodity prices in Brazil, corn prices in Brazil are down 6% compared to last month and down 13% compared to two months ago.

Producers are hoping for improved prices, but the prospect for any meaningful recovery in domestic corn prices seems remote. Conab is estimating that Brazil will produce 79 million tons of corn in 2014/15 in addition to carrying over 14 million tons from last growing season for a total supply of 93 million tons. The domestic usage is estimated at 55 million tons with exports estimated at 21 million tons resulting in a carryover of 17 million tons from the 2014/15 crop. It is hard to see how prices will recover when carryover stocks are increasing.

With an even larger projected carryover than last year, the only hope for a price recovery would be if a significant weather problem developed in the United States during the summer growing season. That seems remote as well with a developing El Nino in the Pacific Ocean that usually results in above trend line corn yields in the U.S., which is the largest producer and exporter of corn.