Brazil shines as a bright spot for corn markets amid tight global supply

The global corn sector could be staring at a tight market in 2023-24, mired by poor weather conditions as well as production and logistical challenges in key exporting countries: the US, Argentina and Ukraine.

In the latest World Agricultural Supply and Demand Estimates report published Oct. 12, the US Department of Agriculture revised the yield forecast for US corn down to 173 bu/acre for 2023-24. In July, the USDA reduced its yield forecast for the US for the first time since 2012 and continued to make downward revisions in August and September.

The USDA revised US export projections to 51.44 million mt, down 630,000 mt from September estimates, amid concerns over water levels at the Mississippi River, which is crucial to the flow of grains from farming communities.

Analysts believe, however, that the USDA may still be overestimating its projections -- final export figures could see a steeper drop.

"Our forecast for US exports is 1.90 billion bu and we see more downside risk to that number," said Paul Hughes, chief agricultural economist at S&P Global Commodity Insights. "We believe the USDA is too high with their forecast."

Meanwhile, the USDA projected Argentina's 2023-24 corn production at 55 million mt, but market experts expect the country's output to be lower.

"We believe that with the financial problems in Argentina, added to a start of the season that could be impacted by dryness, production will be around 48 million mt," Raphael Mandarino, general director of advisory and research firm AgResource Brasil, told S&P Global.

Argentina has been aiming to boost its corn crop, but the absence of rains could disrupt planting in at least 30% of its core plantation area, according to the Rosario Board of Trade.

In Ukraine, the USDA increased output projections by 500,000 mt in September, taking the country's 2023-24 output forecast to 28 million mt, up 1 million mt on the year, while keeping export projections unchanged at 19.50 million mt.

Concerns continue to loom large over Ukraine's ability to export corn through the key ports, particularly after Russia walked out of the Black Sea Grain Initiative.

Optimism in Brazil's corn production

While key corn producing countries are facing hurdles, Brazil is looking like a bright spot.

Having seen a good harvest year, record output and exports, and competitive prices, experts said Brazil could play a key role in filling the global supply and demand gap.

The USDA raised Brazil's 2022-23 corn production estimates to 137 million mt on Oct.12, up 18% from the previous marketing season. The number is largely driven by Brazil's second crop harvest, planted over February-March and harvested over June-July.

Brazil's second crop accounts for 77% of the country's total corn production and is expected to be around 100.2 million mt for 2022-23, Brazil's food supply and statistics agency Conab told S&P Global.

This increased production will meet the rise in domestic demand and at the same time "reflect in a new export record of 50 million mt," Conab said.

The USDA in September hiked the Brazil's 2022-23 corn exports estimate -- comprising the first and second crops -- to 57 million mt, up 1 million mt from its August estimate.

The demand for corn in Brazil "practically started in August" and will be higher than market expectations, supported by the competitive prices, Mandarino said.

"US and Brazil corn FOB prices until November are in the range of $212-225/mt against the $280-325/mt during the fall months in [September-December] 2022 and quotes of $250-280/mt in 2021, meaning corn prices today are cheaper," Mandarino said.

He said Brazil's 2022-23 corn production estimates could even surprise the market.

Data released Sept. 26 by consultancy firm AgRural showed that Brazil exported 9.3 million mt of corn in August and 6.601 million mt Sept. 1-22 -- both being new records.

"Brazil has been very fortunate this year, with nearly perfect weather conditions during the [second] corn crop development," said Daniele Siqueira, market analyst at AgRural, adding that this explains why the country is now seeing a "bumper corn production."

But not everything is rosy for the Brazilian corn markets.

Siqueira said setbacks include low prices due to a record production, slow forward-farmer selling, a lack of storage capacity and a stronger currency against the US dollar.

Persistent low prices could lead to an acreage decrease in the 2024 second corn crop, which will be planted between January and March, Siqueira added.

Brazil's second corn crop harvest for 2022-23 is nearly completed, while the sowing of first corn crop for 2023-24 started in the week ended Sept. 17, according to Conab.

All eyes on China's corn demand

Brazil's supply is crucial particularly at a time when China is facing increased domestic demand and domestic production loss due to unfavorable weather conditions. Supply disruptions due to the Russia-Ukraine war also continues to impact Beijing's food security agenda as the world's largest corn importer used to get as much as 30% of its corn supply from Kiev.

Given its current corn output advantage over Ukraine, Argentina, and the US, the success of Brazil's corn export program in 2023-24 hinges on China's appetite for the crop.

China is expected to buy 23 million mt of corn in 2023-24, according to the latest USDA data. With the fall of the Black Sea Grain Initiative in July, China is looking at alternative supply sources.

China has put food security as its top strategic agenda in recent years, with the goal of being self-sufficient in agricultural production to shield itself from volatilities in the global food supply chain. But domestic consumption has outpaced domestic supply, pushing the country toward imports. Weather-related challenges in China's north and northeast regions have contributed to loss of production, creating a further gap in the country's demand-supply equation.

The USDA said on Oct. 12 it expects China's 2023-24 corn production at 277 million mt, while the domestic consumption was estimated at 304 million mt, up 5 million mt on the year.

Meanwhile, Brazil's corn outflows to China reached 3 million mt in September, according to data from S&P Global Commodities at Sea, surpassing a previous record of 2.4 million mt in August.

Competitive prices

Data from Platts, part of S&P Global, suggests that Brazil's corn prices in the current marketing year have been competitive since February.

On Feb. 1, Brazil corn FOB Santos was at $277.84/mt, while Argentina FOB Up River and US CIF New Orleans corn stood at $302.95/mt and $303.15/mt, respectively, according to Platts data.

"Brazil is arguably the low-cost producer of corn in the world," Hughes said.

While Brazil's prices continued to fall in the months after February, Argentina and US prices went down to match. In September, Argentina corn traded in the range of $214-226/mt, while US corn dropped to $218-228/mt.

The convergence of prices is an indication of Brazil's successful crop, with competitors lowering prices. Even at the same price levels, Brazil's competitive advantage still holds as it is not facing the same challenges as other key exporters. While Beijing's imports from US and Ukraine decline, Brazil corn exports to China continue to increase.