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November 8, 2013

Brazil and China Sign Agreements on Corn Imports into China

The Brazilian Minister of Agriculture and his Chinese counterpart signed two agreements earlier this week that will allow Brazilian corn to be exported to China. The first agreement stipulates the necessary phytosanitary standards for corn imports into China. The second accord is more long term and establishes a process for evaluating new GMO crops being developed in Brazil.

Until a few years ago, China was not an importer of corn and Brazil was not an exporter of corn, but both of those have now changed. The lack of land and water resources in China has left the country more and more reliant on imported soybeans and corn to feed it rapidly increasing population and livestock industry. China is by far the largest importer of soybeans in the world and it is poised to be a major importer of corn as well.

Brazil has now become the third largest corn producer in the world behind the United States and China. Disappointing corn production in the United States over the last several years has resulted in record high corn prices and Brazilian farmers have responded by ramping up their corn production. The increase in large part is due to the tremendous increase in the amount of double crop corn production. During each of the last two marketing years, Brazil exported 20 million tons or more of corn, which is more than double the amount of just several years ago.

Farmers in Brazil are hoping that corn exports to China will commence with the harvest of the 2013/14 corn crop. Most of the full-season corn harvested in Brazil is consumed domestically by the livestock industry in southern Brazil while most of the double crop corn moves into the export market. During the 2012/13 growing season, approximately 58% of Brazil's total corn crop was produced as a double crop planted after the soybeans were harvested. The two largest double crop corn producing states in Brazil are Mato Grosso and Parana.

The possibility of exporting corn to China is good news for Brazilian producers, but they fear that they will not be competitive in the corn export market if the inefficient infrastructure in the country is not improved. Most of the exportable corn in Brazil is produced in the state of Mato Grosso and transporting the corn to export facilities in southern Brazil can be extremely expensive. Currently, it cost more to transport the corn from Mato Grosso to ports in southern Brazil than it does to purchase the corn in the interior. Additionally, if large amounts of corn are to be exported to China, the major ports in Brazil need to expand their capacity in order to accommodate record amounts of both soybeans and corn moving through the ports.

The agreement between Brazil and China coms on the heels of a similar agreement between Argentina and China signed last year. A small amount of Argentine corn has already been exported to China, but farmers in Argentina are more intent on increasing their soybean acreage at the expense of corn acreage.