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Interview: Brazil corn exports, domestic demand to stay firm this season despite coronavirus: CEPEA

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Platts Biofuelscan

Interview: Brazil corn exports, domestic demand to stay firm this season despite coronavirus: CEPEA

New Delhi — Brazilian corn exports and domestic demand are expected to remain strong despite concerns about the huge surplus in the US and weaker consumption due to the coronavirus pandemic, researcher with Brazil's agricultural think tank Center for Advanced Studies on Applied Economics (CEPEA) Lucilio Rogerio Aparecido Alves told S&P Global Platts in an interview.

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Alves said the data so far did not indicate that exports would be lower than forecast for the current marketing season that started in February 2020 and ends in January 2021.

CEPEA produces agribusiness price indexes, costs estimates, risk evaluations and detailed domestic and global markets information, covering about 30 agribusiness supply chains in Brazil.

In Brazil, the first corn crop is planted during September-December and harvested in February-May, while the second crop is planted after the soybean harvest in February-March and harvested in June-July.

Brazil exported a record 41.17 million mt of corn in previous marketing season. The country is likely to export 34.5 million mt in current marketing season, according to the country's Companhia Nacional de Abastecimento (Conab).

Conab has also forecast domestic demand for corn in Brazil at a record 70.5 million mt for the current marketing season, up 8% year on year.

There could be a slight fall in corn consumption in sectors such as ethanol, food and beverages, but demand remains relatively firm, Alves said.

When asked about concerns over demand from major buyers such as Iran, Japan, Vietnam, and South Korea because of the worsening pandemic, Alves said, "in view of the need to maintain food security at satisfactory levels, sudden changes in demand are not expected."

FACTORS FAVOR BRAZILIAN EXPORTS

The collapse in fuel and ethanol demand in the US, which is a major user of corn, is expected to flood the global market with corn this season.

Corn planted area in the US is also seen at a record 97 million acres in 2020-21, according to the US Department of Agriculture.

All this would mean Brazil could face tough competition for exports this year, unlike last year when it enjoyed a competitive price edge over US offers.

However, Alves said corn exports from Brazil could still reach significant volumes in the current season as Brazil has a price advantage over Argentina and the Black Sea region, the other two big exporters.

The Brazilian real recently hit an all-time low against the dollar and remains weak, benefiting exports.

It is also noteworthy that Argentina increased corn export taxes to 12% in December from 6.7%.

"A significant portion of [corn] production was already negotiated in export forward contracts in the second half. In Mato Grosso three quarters of the production is already pledged and in Parana 80% of the corn of first harvest and 25% of the corn of second harvest," he said.

Another factor that may help corn exports are accelerating soybean exports, which would also help in increasing the pace of corn exports, Alves said.

Corn exports from Brazil are usually more intense in the second half of the year.

DOMESTIC DEMAND SCENARIO

Brazil corn prices hit record nominal levels this year due to strong domestic consumption and low stocks.

While there is hope among livestock feed manufacturers that corn prices could ease once the second corn harvest begins in June, the price drop may not be steep, according to Alves.

"Traditionally, prices drop when there is greater domestic availability of corn. The size of the drop will depend on how quickly exports will take place. As soy exports are accelerating this year, it is expected that corn shipments will also occur quickly, with the advance of the harvest at the beginning of the second half, the price drop may be lighter," Alves said.

One of the key reasons for the surge in domestic corn prices was higher demand from the ethanol sector. However, with the sudden plunge in crude oil prices and demand for fuel due to coronavirus-related restrictions imposed across the globe, doubts loom over domestic demand for corn from the ethanol sector.

"With reduced demand and lower price of ethanol, the industries made corn available on the market, but the volumes are not significant. Production units are concentrated in the Midwest, especially in Mato Grosso state, where prices are lower. As there is a significant production surplus, ethanol processing is attractive," Alves said.

With corn harvest a few weeks away, farmers are worried over the impact of dry weather in some of the key corn-producing regions in Brazil. But Alves says that "the climatic conditions until mid-May, in particular, will be decisive for assessing the conditions of the crops. For now, there are no factors that justify changes in the volume of supply."

According to the latest report by the Secretariat of Agriculture and Supply, the second corn crop in Parana is forecast at 12.2 million mt for current season, from 13.2 million mt in the previous season.

Parana has lost about 600,000 mt of its second corn crop to drought this season, the secretariat said.

In Mato Grosso do Sul, second crop production is seen at 9.5 million mt in the current season compared with 12.2 million mt in the previous season, according to a survey jointly conducted by Mato Grosso Institute of Agricultural Economics (IMEA), Federation of Agriculture and Livestock of Mato Grosso do Sul (FAMASUL) and Institute for the Strengthening of Agriculture in Goias (IFAG).

Although production is seen dropping in some of the major corn-growing states, corn output in Mato Grosso, the largest producer in Brazil, is seen growing to 32.44 million mt in the current season, slightly higher than the previous season.

Conab has forecast Brazil's corn production at a record 101.87 million mt for the current season.