Brazil’s corn challenge in U.S. market may lower prices

Recent surge in the South American country’s exports may be short-lived, but analysts argue the writing is on the wall

The corn market is getting a glimpse of what the future holds as surging exports out of Brazil threaten the United States’ position of dominance, say analysts.

Brazil shipped 34.7 million tonnes of the crop through the first 10 months of 2019, which is 60 percent more than the previous record for that period, according to a recent Reuters column on the topic.

By contrast, U.S. exports were 36.2 million tonnes during the same period, a 40 percent reduction from the previous year.

That has some speculating that Brazil is taking over the corn market like it did with soybeans and like the Black Sea region has done with wheat.

Rich Nelson, chief strategist with Allendale Inc., said it is a little early to be drawing those comparisons because 2019 is an anomaly.

Brazil has produced record back-to-back 101 million tonne corn crops. The previous five-year average was 82.5 million tonnes.

That is part of the reason Brazil’s 2019 exports are well above the recent average of about 25 million tonnes.

The other reason is that Brazil’s export price has been about US$40 to $70 per tonne below the U.S. export price for most of the year.

Nelson said the market overreacted to early-season planting struggles in the U.S., creating the wide chasm between Brazil and U.S. prices.

“This 2019 period is an historically odd period of imbalanced pricing,” he said.

The U.S. Department of Agriculture is forecasting 47 million tonnes of U.S. corn exports in 2019-20, which would be down from 52 million tonnes last year and well below the record 62 million tonnes shipped out in 2017-18.

Many in the trade believe exporters will struggle to meet the USDA’s target, which has pulled prices down. The USDA’s balance sheet implies corn futures of $3.85 per bushel.

“The market has moved to a full 20 cent discount beyond that based on the fact that we were not on pace to hit their export goals,” said Nelson.

However, the price pendulum has swung back and U.S. corn is now selling at a $30 per tonne discount to Brazilian corn.

“Our period of imbalance is over and we will have a moderate increase in export sales in the next few weeks,” he said.

Nelson expects U.S. prices to steadily climb from now until spring planting as the pace of exports picks up.

But while the 2019-20 market shifts back to more traditional trade patterns, there is no doubt that Brazil is increasingly threatening U.S. sales in some key markets such as Mexico because of improvements to its northern transportation corridor.

The Reuters column noted that a record two million tonnes of corn were shipped out of the country’s northern ports in October, which was about one-third of the country’s total corn exports that month. That is double the previous monthly record set in October 2015.

Nelson said the combination of improved roads and port capacity, the ability to convert more land into farmland and rising yields will eventually result in Brazil overtaking the U.S. as the world’s largest exporter of the crop.

“I think that will come, but perhaps in decades,” he said.

Kim Anderson, an agricultural economist at Oklahoma State University, said the shift is already well underway.

In a recent article he wrote for the Farm Progress website, he noted that Brazil’s share of world corn exports was 23 percent in 2018-19, up from 0.3 percent in 1999-2000.

The U.S. share of exports dropped to 29 percent from 65 percent over that same period.

He believes what is happening in corn is reminiscent to soybeans, where Brazil stole America’s crown as the world’s top exporter.

“The only difference in the wheat export market story is, instead of South America, it was Black Sea exporters that replaced the U.S. as the leading exporter of wheat,” said Anderson.

He said the looming changes in the world corn export market will lower U.S. corn prices in the long-term and will likely also drag down wheat prices since feed wheat competes with corn.

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