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September 7, 2020

Strong Exports Forces Brazil to Import Soybeans, Corn, and Rice

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Brazil is a major producer and exporter of grain, but the country must now import soybeans, corn, and rice to meet domestic demand before the new harvest is available. In an ironic twist, Brazil exported the grain at a lower price and now they must import the same grain at higher prices according to the vice-president of the Agriculture and Livestock Federation of Santa Catarina (Faesc), Enori Barbieri.

The devaluation of the Brazilian currency earlier in 2020 made Brazilian grain exports very competitive in the international market. Additionally, strong demand from China for grains and protein added to the export volumes. Now Brazil must import those same grains in order to produce meat and other foods.

Soybeans are the most emblematic of the current situation. Brazil is the largest producer and exporter of soybeans and now end-users must import soybeans to maintain poultry and hog production. Brazil is expected to export 80 million tons of the 2019/20 soybean crop resulting in very tight domestic supplies and high domestic soybean prices

At the start of the soybean harvest last February, a sack of soybeans was selling for about R$ 85 reals (approximately $7.75 per bushel). The current domestic price of soybeans is R$ 130 per sack (approximately $11.15 per bushel). Brazil has already imported approximately 500,000 tons of soybeans from Paraguay, and if they need to import soybeans from the United States, the price could be as high as R$ 150 per sack (approximately $12.80 per bushel). The market is so hot that 60% of Brazil's 2020/21 soybean production has already been sold.

For the first time in the recent history of Brazilian agriculture, the domestic prices in Brazil are higher than on the Chicago Board of Trade.

Situation for corn very similar. Brazil is the world's third leading corn producer after the United States and China. Brazil's 2019/20 corn production was more than 100 million tons with 30 million tons of exports and 70 million tons of domestic consumption. Domestic corn supplies are very tight and domestic corn prices are in the range of R$ 50 per sack (approximately $4.25 per bushel) with some deferred contracts as high as R$ 65 per sack (approximately $5.50 per bushel). In order to not run out of corn, some big end-users are importing corn with a port price as high as R$ 71 per sack (approximately $6.08 per bushel).

Rice is a staple of the Brazilian diet and Brazil is the 11th largest rice producer in the world. Due to low prices at the end of the 2018/19 growing season when Brazil produced 12 million tons of rice, Brazilian farmers switched some of their rice acreage in 2019/20 to soybeans instead. As a result, Brazil's 2019/20 rice production fell to 10.4 million tons.

Even though Brazil's rice production fell in 2019/20, the devaluation of the Brazilian currency stimulated increased rice exports especially to Mexico. At the start of the rice harvest, farmers were receiving R$ 45 per sack of 50 kilograms, but the export market paid more than the domestic market, so supplies are now very tight and domestic prices are in the range of R$ 100 per sack of 50 kilograms. End-users must now import rice to make it until the new harvest starts next February.

Domestic industries have petitioned the federal government to suspend the 8% import tariff for any grain imported from non-Mercosul countries.

In addition to the fact that the devaluation of the Brazilian currency in 2020 distorted the market, the Brazilian government has also greatly reduced its efforts to stabilize the grain markets by maintaining stockpiles of grain. Traditionally, Conab has established minimum prices for grain and anytime domestic prices fell below the guaranteed minimum, Conab would support the prices by purchasing and storing the grain for future sale. The scale of that program has been greatly reduced so now the government does not have grain stocks they could sell into the domestic market in order to lower domestic prices.