South America has been a special part of my life for four decades. I have lived many years in Brasil and Peru. I am married to an incredible lady from Argentina. I want to share South America with you.
As Brazil staggers from one political crisis to another, a severe corn shortage is threatening its agricultural sector, one of the bright spots in an economy suffering from the deepest recession on record.
The Latin American country is facing a corn shortfall after a plunging currency led to asurge in exports and the latest harvest was damaged by exceptionally dry weather earlier this year.
Corn is an important source of export revenue as well as feed for the domestic livestock industry. The resulting jump in Brazilian domestic prices has hit pig farmers, prompting them to send livestock to slaughter early, as the costs of keeping them has become too exorbitant.
“The abattoirs around here are certainly busy,” says Custódio Rodrigues, executive director for Acrismat, the pig breeding association in Brazil’s central state of Mato Grosso.
He estimates that in his state farmers are currently making an average loss of R$10 ($3) to R$15 per pig. In April, the average loss per animal reached as much as R$50.
The shortfall in corn supplies in one of the world’s leading exporters has also had a knock-on effect on international markets, boosting prices as well as changing the trade flow of the grains.
Historically, Brazil’s corn exports were small, but soil improvement technology and no-tillage systems boosted productivity, increasing yields and exports. The country is now the world’s second-largest corn exporter after the US, with exports of the grain surging from 1m tonnes in 2005 to 29m in 2015, according to official Brazilian data.
Over the past year, encouraged by the sharp fall in the Brazilian real, corn farmers and others have been exporting heavily, leading to a sharp fall in inventories.
“[The Brazilian farmers] completely oversold,” says Kona Haque, head of research at agricultural commodity traders ED&F Man.
The shortage worsened after extreme heat in April and May hit the safrinha, or second corn crop harvest planted in February. The safrinha, meaning “little harvest” in Portuguese and normally planted after a soyabean crop, was traditionally smaller than the full-season corn crop, but it is now larger and has become Brazil’s main corn harvest.
“Everybody was waiting for the safrinha crop, but then they had extremely dry conditions,” says Stefan Vogel, head of agri commodity markets research at Rabobank.
As a result, the price of corn in Brazil has surged to record levels. In the key growing state of Mato Grosso, corn prices in May averaged R$39.28 per sack, or $5.10 per bushel, which was 147 per cent higher than the five-year average, according to Michael Cordonnier, president of consultants Soybean & Corn Advisor in Chicago.
Brazilian market tightness in turn pushed up international corn prices, with the CBOT corn benchmark rallying 6 per cent, surging over $4 a bushel for the first time since July 2015.
The lack of domestic supplies has prompted Brazil to turn to imports from Argentina, Paraguay and small quantities from the US, according to traders.
Brazil’s government reduced the tax on corn imports from 8 per cent to zero for six months for shipments from countries outside Mercosur, the South American trade bloc, in an attempt to keep down prices.
The South American country’s current inability to export has meant that importers will be turning to the US for supplies. The USDA this month raised its forecasts for US corn exports for the 2016-17 crop year as their supplies are expected to remain more competitive with less production for Brazil.
“The US needs to make up for some of the destinations that were serviced by Brazil,” says Mr Vogel.
Brazilian corn supplies are unlikely to pick up soon, says Marcos Rubin, analyst at Agroconsult in Brazil. “In the first half of next year we are likely to see the same shortages we are seeing now,” he says.
A similar story is now unfolding in the country’s soyabean market, with domestic prices rocketing. “They also oversold soybeans, and all the demand is now shifting to the US,” says Ms Haque.
The tight supplies and record high domestic prices for corn, soybeans, and staples such as beans and rice are expected to hit Brazil consumers at a time when the country is already in the midst of one of the worst recessions in decades, according to Soybean & Corn Advisor.
For the struggling livestock sector, which is also a large exporter to international markets, there is no relief in sight.
Francisco Turra, president of Brazil’s Animal Protein Association, says the country’s poultry sector is in a “crisis situation” with lossmaking plants being forced to close. Demand has also plummeted as recession-hit Brazilians cut back on meat.
Mr Turra says: “I don’t remember the last time we faced a crisis of this intensity, size and duration.”