Commodities 2023: Brazil's corn market likely to see higher competition, prices as China enters as major buyer

The entry of China as a major buyer in the Brazilian corn market is likely to make the latter's local market competitive and support prices starting in 2023, trade sources and analysts told S&P Global Commodity Insights. The recent surge in COVID-19 cases in China remains a risk factor and the volume of its Brazilian corn imports will depend on how effectively it is able to tackle the pandemic, the analysts added.

China has emerged as one of the largest consumers of corn in the last couple of years and has been among the key drivers of global corn prices.

China recently paved the way for Brazilian corn imports to enter the country, releasing an updated list of corn exporters from Brazil on Nov. 2.

It named over 100 companies, facilities, and cooperatives with storage and shipping that had been granted permission to export Brazilian corn to the country, potentially by the end of 2022 after meeting phytosanitary requirements, S&P Global reported earlier.

Most of China's purchases of corn thus far have been from the US and Ukraine.

Unlike soybeans, Brazil's domestic corn market is larger than its export market.

Local livestock feed manufacturers have to be more proactive in covering their needs to mitigate risks, said a Brazil-based source involved in grain procurement, adding that producers are likely to gain from exports to China.

Another source involved in grain procurement in Brazil said, "We are talking about bigger businesses in terms of volume. Consumers in the domestic market will have to pay higher prices to ensure domestic supply in case of increased export demand. Their purchase prices will begin approaching the export values."

"It might be the case that the export price will increase a little. As for the farmers, the more they export the better."

High near-term prices

Corn producers in the country said that they would expect higher prices in the near term with China beginning to import from Brazil.

Farmers in Brazil have been a bit slow to market their 2023 second-corn crop as they expect demand to be strong amid drought in Argentina and the entry of China into the Brazilian corn market, said Daniele Siqueira, market analyst with the Brazil-based consultancy AgRural.

By the end of November, 12% of the 2023 second-corn crop production had been sold by farmers in south-central Brazil, compared with 24% a year ago, Siqueira said.

Farmers have been holding back sales in late 2022 on expectations of improved market conditions ahead as prices had doubled a short while after a lot of the crop was sold in 2020.

"They also see good demand with China coming, the war in Ukraine and La Nina that is already affecting Argentina. So they are confident of even higher prices," said the first grain procurement source from Brazil.

Farmers also made a lot of money from selling their soybean crop last season, so they are not keen on selling their crop if prices do not match their expectations, another Brazil-based source said.

Market sources said that Brazil also has adequate stocks of corn in case of an increase in demand.

"If our production is okay and we don't have any weather-related problems and we harvest 126 million-127 million mt, we will have about 45 million-50 million mt to export in 2023. If China buys 4 million-5 million mt, we will still have 40 million mt to export to other countries," Siqueira said.

Record exports likely

The consensus among various crop forecasting agencies is that Brazil is set for a record corn crop and exports in 2022-23.

"I'm usually pretty conservative to start with, so we're at 123 million-125 million mt [corn production.] Brazilian exports [are seen at] 45 million-46 million mt, but should that crop get to 126 million mt and over, we think exports can get to 50 million mt. Argentina's corn production is shrinking," said Pete Meyer, Head of Grains, Oilseeds and Advanced Feedstocks Analytics at S&P Global.

Moreover, US corn exports remain suspect due to freight costs, which have been increasing due to low river levels and now frozen rivers, Meyer said.

COVID-19 uncertainty

The volume of Chinese imports for MY 2022-23 is uncertain as the country is currently in the middle of efforts to control the spread of COVID-19. Depending on China's appetite for rebuilding corn stocks and the growth rate of consumption, imports could range from below 10 million mt to greater than 25 million mt.

The growth in China's corn consumption is likely to be tempered by the COVID-19-induced setbacks to the country's economy.

Some market participants expect Chinese imports to be lower than 22 million mt seen in 2021-22.

According to a source, China's imports of corn could reach 15 million mt in MY 2022-23. In this scenario, China may buy a maximum of 4 million mt of corn from Brazil in 2023.

If China achieves a reasonable amount of success in tackling the pandemic, then a greater economic recovery can be expected. In that case, sources said total Chinese imports could exceed 25 million mt, higher than 22 million mt in 2021-22 but still lower than 29.6 million mt in 2020-21.

If China manages to bring COVID-19 under control Brazil's corn exports to the country could hit 10 million mt in calendar year 2023 as it currently has the most competitive prices, market sources said.

The prices of US and Argentine corn are currently below domestic levels in China while Brazilian prices are relatively more competitive.