Historically low water levels on the Parana river are hampering Brazil's imports of corn at a time when they are needed more than ever because of a smaller-than-forecast domestic corn crop.
The country's second corn crop is estimated at 60.3mn metric tonnes (t), 9.9pc below the previous estimate of 66.9mn t and a drop of 19.6pc from last season's production of 75mn t, according to the latest estimate from the national supply company Conab. To meet domestic demand, imports have been on the rise.
At the same time, corn prices have also been increasing. In July 2021, prices tracked by the Center for Advanced Studies in Applied Economics (CEPEA) were between R15-20 ($2.9-3.85) more expensive than the export reference price, which is starting to favor the import of significant volumes of corn.
At least 60 vessels loaded with corn are expected to arrive in the country between now and the beginning of 2022, according to market participants. A single company in the meat sector confirmed in July that it had closed deals to import 30 vessels loaded with corn from Argentina.
A significant volume of these imports, which come from Paraguay and Argentina, are transported along the Parana river, which is a vital corridor for regional trade in commodities. But water levels have been low for the last year, as Brazil faces its worst drought in a century. Just weeks ago, water levels on the Parana river reached their lowest in 77 years and Argentina and Paraguay have declared a water emergency in the region. The situation has also been affecting the prices of soy oil in Brazil and Argentina.
On the Brazilian side, navigation along the Tiete-Parana waterway is facing possible interruption, which would have a strong impact on agricultural flows and production costs in Brazil. Critical levels are expected by October. This would also cause an impact on logistics costs, since transport costs along the waterway are as much as 50pc lower than road freight.
The Tiete-Parana waterway connects the Brazilian states of Sao Paulo, Mato Grosso, Mato Grosso do Sul, Parana and Minas Gerais, mainly enabling shipment of cargoes of corn, soybeans, oil, timber, coal, sugarcane and fertilizer. In 2020, the waterway transported 2.1mn t of cargo, even in the face of the Covid-19 pandemic. In 2019, volume handled was 2.5mn t.
With the latest drought conditions, ships and barges need to navigate the waterway at lower capacity than usual, resulting in increased logistics costs and longer travel times.
In years without corn supply problems, it is estimated that Brazil imports between 1mn-1.5mn t from Paraguay and Argentina. But Fábio Carneiro, technical advisor of the National Commission of Cereals, Fibers, and Oilseeds of the Brazilian Confederation of Agriculture and Cattle Raising (CNA), said this volume is expected to reach 2.3mn t for 2021. Between February-July this year, 938,000t have already been imported, up by 200pc from the same period in 2020.
But even with the problems in this cycle, corn consumption is still mostly supplied by domestic supply, Carneiro said. Even if imports are higher than current estimates and reach 3mn t, this volume is enough to supply only two weeks of Brazilian consumption, Carneiro said. Each month, between 5.5mn-6mn t of corn are consumed in Brazil, according to the CNA.
Logistic alternatives
For imports originating in Paraguay, corn can be transported to Brazil mainly via highway to supply the demand of swine and poultry farms in the west of Parana and Santa Catarina states.
As for corn coming from Argentina, low water levels are affecting the port of Rosario, the main Argentinean port for exports of commodities. The alternative has been the port of Bahia Blanca, south of Buenos Aires, which has been handling corn volumes this year that are about 21pc higher than last year. Still, the greater distance to take the product there by truck makes logistics more expensive and limits movement through this port.
Still, even with the logistical problems, Paraguay and Argentina should continue to be Brazil's main suppliers of corn imports in 2021, because of the competitive prices at which corn reaches Brazil. Another alternative would be the US, which is the largest corn exporter in the world.
The US' logistical proximity to the northeast of Brazil mainly favors the entry of North American corn through the region. In addition, North American corn, and any other corn from outside the regional trade block Mercosur, is already exempt from the Common External Tariff (TEC). According to Carneiro, the exemption is fundamental at this moment to guarantee new purchase options, should they be necessary.
Incentives for cabotage are also important, but that depends on approval of a bill called BR do Mar. The legislation encourages cabotage and cargo transportation between Brazilian ports by sea. The bill was approved by Brazil's lower house in December 2020 and is awaiting a vote by the Senate.
