Market Talks: Dry weather changes corn harvest estimates

Author Argus

Some corn producing areas of Mato Grosso had losses of 50pc in yields because of the lack of rain. The dry weather has also affected crops in other regions of Brazil.

Join Camila Dias, Argus Brazil Country Manager, and Alessandra Mello, Deputy Editor for the Argus Brazil Grains and Fertilizer publication. They discuss the real size of this crop failure and how it affects the outlook for Brazilian corn exports this year.

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Transcript

Camila Dias: Hello and welcome to 'Market Talks' - a series of weekly podcasts produced by Argus discussing the main events impacting the commodities and energy sectors in Brazil and around the world. My name is Camila Dias, Argus Brazil Country Manager. In today's episode I talk to Alessandra Mello, deputy editor of the Argus Brazil Grains and Fertilizers publication, about the recent cuts in forecasts for corn production in Brazil. Welcome, Alessandra.

Alessandra Mello: Thanks, Camila, always good to be here.

CD: Alessandra, this year it seems that the weather is more favorable for corn, but yet we may have surprises in the winter crop, is that correct?

AM: Yes, Camila, some changes from the initial expectations are already happening. Argus had been warning about this with reports from farmers in the central west region that faced dry weather in very important periods for the corn development. The last estimate by the National Supply Company, Conab, released in May, confirmed this trend of a slight decrease in corn output compared to the initial forecast. The second crop, the largest in the country, is now forecast at 87.7 mn t, down from last month's estimate of 88.5mn t, but 44.5pc higher than last season.

CD: So you mean that despite the weather problems, we are still going to have a record corn crop?

AM: Yes, everything points that way, and there are two main factors for this significant increase in corn production. First one is the advance in the planted area. This year we had half a million more hectares planted with corn in Brazil, and this, of course, if we look at the three crops together. Brazil is able to plant three corn crops in the same year. This season, the total area is expected to be 21.5 mn hectares, compared to 19.9 mn hectares last season. Both the second crop, which is the largest in the country, and the third crop, which is concentrated in the North and Northeast regions, are increasing acreage in almost 9pc. And even the summer crop, which is being harvested and is concentrated in the South, also saw a 5pc increase in planted area.

CD: And what else is crucial for this record corn harvest?

AM: It is the combination of planting within the ideal timeframe and favorable weather. This was seen in the first months of the development of the second corn crop, especially in Parana state, which is the second largest producer in the country. Very different from the devastating scenario of the last harvest, now soy was harvested early, corn was also planted soon after, and there was no lack of rain in Parana. On the contrary, there were even occasional episodes of very heavy rain, with occasional losses. But overall the corn crop in Parana is very good this year. This also guarantees excellent yields in most of the producing regions in the country.

CD: And in the state of Mato Grosso, how is the corn condition?

In Mato Grosso the forecast for the second harvest was revised downwards at the beginning of May, dropping to 39.34mn t, from 40.4mn t projected in the previous month, according to the Mato Grosso Institute for Agricultural Economics (Imea). I talked with leaders of Aprosoja – the association of soy and corn producers in the state - and also with the vice-president of Famato, Mato Grosso's Agriculture Federation, Marcos da Rosa, and they believe there will be a new cut in the next estimate, the harvest should fall to 36mn t, so there would be a 10pc drop compared to what was expected for corn in the state at the beginning of the season. This is because the rain in the safrinha corn season was very irregular, in some areas it rained well and in others there was almost no precipitation. At the time of the soybean harvest it rained a lot in Mato Grosso, resulting in some corn areas planted later. And these are the crops that suffer more with the drought stress on plants. In Diamantino, for example, an important producing region, which went more than 30 days without rain, losses reached 50pc.

CD: Is there still a risk of further cuts in estimates?

AM: Yes, I think so. This past week I saw several private consulting firms talking about a reduction in the estimates for the second corn harvest. Agroconsult, for example, has just started its crop tour through the producing areas, the so-called Rally da Safra, but they already announced that they were reducing their estimate for the second harvest to 87.6mn t, a cut of 4.6mn t from the previous outlook. The number expected by the company for the total Brazilian harvest is already below the last projected by Conab, which was 114.6mn t. Agroconsult now expects a production of 113mn t. And there are even more pessimistic forecasts in the market. The consulting firm AgResource expects 84.4mn t for the second harvest and a total corn production for the year of 108mn t.

This latest cold wave that affected the South and Southeast regions of Brazil was also a concern for corn. It was estimated that if there were severe frosts, Parana state alone could lose almost 5mn t. But this did not happen, the temperature dropped, but as it was windy and the frost was moderate, there was no significant loss in corn production.

So the surprise will really come as the harvest advances in the areas affected by the drought in central west, as Goias and Mato Grosso states and also in Minas Gerais.

CD: And in this scenario, what should we expect for corn exports this year?

AM: Well, it is a fact that this year, despite the climate problem, we will have much more corn available for export. In addition, the conflict between Russia and Ukraine has completely changed the international scenario. To have an idea, four countries until last year accounted for 85pc of global corn exports: US, Ukraine, Argentina, and Brazil. With Ukrainian ports blocked, corn-buying countries are importing more from other markets, especially from these alternative suppliers like Brazil.

Another curious fact: April, this year, was the best April in the history of Brazilian corn exports. There were more than 700,000t shipped, one year earlier, the country exported less than 131,000t, even because it is a period in which, usually, Brazil does not have large volumes of corn to export. In May a new record for the month may be reached. The National Association of Cereal Exporters, Anec, is forecasting the shipment of almost 1.3mn t.

Now you asked me about the year as a whole. I talked to Marcos Araujo, managing partner of Agrinvest commodities, they are forecasting that Brazil will export 43mn t in 2022, which would be the record level reached by the country in 2019. But if this lower production is confirmed because of the dry weather, Araujo said that they will probably revise it down, to something close to 41mn t. Let´s remember that Conab, in its last report, forecast 37mn t for corn exports. Even so, it will be an excellent result, and may be the second best in history. But… we can't compare it to last year, when there was a giant shortfall in the harvest because of the dry and cold weather and Brazil exported a little more than half of what is expected now, something around 20mn t.

CD: Alessandra, Argus has the daily coverage for corn premium in the Santos Tubarao market. Is this more optimistic scenario for exports already reflected in the prices we publish daily?

AM: Yes, Camila, the premiums for shipment in August, for example, that before the Ukrainian conflict were indicated at a little more than 60¢/bu over the CBOT, in mid-March they were already above 120¢/bu, because of higher demand for Brazilian corn. Now, in May, as we expect a good surplus of corn production for export, the premiums for shipment in August are being maintained closer to 70¢/bu, which is natural. And with that, Brazilian corn is many times more competitive than the North American corn, attracting more and more buyers from Iran, Egypt, Japan and also more and more from Latin America, such as the Dominican Republic. It should be a much better year for the corn market, we have seen a higher volume of closed deals in the cargo market, which has been showing a higher demand. Our commentary and corn premiums are published daily on the Argus subscriber platform, Argus Direct, and are also part of a global and daily agricultural report, the Agrimarkets. I recommend staying tuned for this, the corn market is expected to move well in the second half of the year, lets see!

CD: That's right, and we will keep a close eye on it! Thank you so much, Alessandra.

This and other episodes of our podcast are available at the Argus website at www.argusmedia.com. Visit the page to follow the events that affect global commodity markets and understand their developments in Brazil and in Latin America. We'll be back soon with another edition of “Market Talks”. See you soon!

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