Brazil’s 2022-23 corn harvest might set a record high, and market participants expect exports to grow this year.
Join Camila Dias, Argus Brazil Country Manager, and Alessandra Mello, Deputy Editor for the Argus Brazil Grains and Fertilizer publication as they talk about perspectives for the corn sector and the beginning of deliveries to China.
CD: 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 perspectives for Brazilian corn production and exports in 2023. Alessandra, welcome.
AM: Thank you, Camila, I am glad to be here again.
CD: Brazil has increased its corn output in the last harvest and more than doubled its exports in 2022. Is this positive result expected to continue throughout 2023?
AM: Well, everything indicates that it will, Camila. Brazil is expected to harvest a record corn crop in 2022-23. National supply company Conab projects the total corn crop – which includes the first, second and third crops - at 125.8mn t, well above the 113.1mn t estimated for the 2021-22 crop, mainly because of an expected increase in planted area to 22.3mn hectares (ha) from 21.6mn ha. What is also pushing Brazil’s corn output is the fact that soybeans were planted early, so the winter corn crop, which is the largest in the country, should also be planted within the ideal window, reducing weather risks. So far, it is estimated that the La Nina phenomenon is already weakening in these first months of the year, so if there are no changes to this forecast, crop yields should remain high.
CD: What about exports, will they keep growing?
AM: Most market participants believe that it is quite likely for corn exports to at least repeat the good performance of 2022. But there are already estimates of growth. Just to have an idea, Brazilian corn shipments rose to more than 43mn t in 2022, from less than 21 mn t in 2021. So, the idea is to export in 2023 something above that, maybe something between 44-50mn t. And there are several reasons for that. The first is the higher production, which tends to result in a higher exportable surplus. The second is the additional international demand that Brazil has been counting on for corn. Ukraine's absence from the global corn market in the first months of 2022, after the beginning of the conflict with Russia in February, lifted demand for Brazilian corn, as countries that usually relied on the eastern European nation had to look for alternative suppliers of corn. In March, export opportunities arose for Brazil's summer crop for shipments in April-May, which is atypical, as most output comes from the second or winter crop. Brazil's corn export season occurs in the second half of the year, after the peak of the second harvest, in July. A second determining factor for the increase in Brazilian corn exports was the higher demand from European countries, which had a drop in production because of adverse weather. Later in the year, Brazil also had higher demand from Central American countries and even Mexico, that started buying Brazilian corn when navigation on the Mississippi River was interrupted by drought conditions, making it difficult to export US grains. And then came the opening of the Chinese market, which could have a great impact on the market
CD: I’m so glad you mentioned China, Alessandra, because my question is exactly about that. How will the beginning of shipments to China affect the corn market?
AM: Well, the exact volume that will be exported to China is still quite uncertain, but it is estimated that Brazil has already shipped 1.5mn t of corn between December 22 and January 23. It is worth remembering that throughout 2022 the Asian country signed a sanitary agreement with Brazil to import the grain. It deals with requirements to keep quarantine pests out of China. Trading companies consider the rules to be very strict, as they demand full corn traceability, from the farm to the port terminal. The agreement originally foresaw exports to begin in the 2022-23 harvest, but in August both countries agreed that only warehouses and port terminals would be inspected, which made it possible to export corn harvested in the 2021-22 season. Shipments began in late November. Market participants estimate that between 3-5mn t of Brazilian corn will be exported to China in 2023, but this will depend a lot on how the situation in Ukraine will be, on the size of the North American harvest, and mainly on the competitiveness of Brazilian corn.
CD: So this China factor will also be important in defining corn prices and premiums?
AM: Oh yes, absolutely. The expectation is that this firmer demand, due to having China as a new buyer, should help keep premiums stable in Brazil in the first quarter. For corn prices in Chicago, market participants believe there is room for slight increases, also because of crop losses in Argentina, but premiums in Brazil may fall starting in the second quarter if the record harvest is confirmed, some market participants say. Despite record corn exports in Brazil, there was less liquidity and few deals reported in the Santos/Tubarao cargo market, one of the most important corn routes in the country, assessed by Argus. Most deals were closed in the cnf market and in the so-called in-house model, that is, between companies that operate in Brazil and have offices in the buying countries. The cargo market was volatile in 2022. Premiums closed at 150¢/bu over the CBOT in May and dropped sharply in June and September. Now, as I said, the market should be more stable. But besides the international scenario, everything will depend, as always, on the weather. The Brazilian second crop, which is the country’s largest, is planted in a period where there is often a lack of rain in Brazil, so there is always the risk of a crop failure. Brazil’s corn output will dictate the performance of prices and port differentials. Before signing off, Camila, I also think it is important to mention that exports from the Northern Arc ports, which offer better logistics to serve Central America and Europe, also grew in 2022, which helped reduce liquidity in the Santos/Tubarao cargo market. The southeastern and southern ports are more competitive to export corn to Asian countries. Just out of curiosity, Japan was the second largest buyer of Brazilian corn, only trailing Iran. The third largest importer of Brazilian corn from January to November 2022 was Spain. Let's see how China will do next year...
CD: Alessandra, thank you so much. This and other episodes of our podcast are available on 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!