Market Insight | Week 41

In examining global bulk shipments, what stands out is the weakening of corn exports from Brazil, particularly during the second corn crop (safrinha) harvest. This decline is contributing to a year-over-year reduction in Brazil’s total grain exports, including soybeans, following Brazil’s surpassing of the United States as the largest corn exporter last year. Specifically, according to an ANEC report, Brazil exported a total of 23.49 million tonnes of corn from January to September 2024, compared to 34.08 million tonnes during the same period last year. For October 2024, ANEC projects total exports of 5.68 million tonnes, in contrast to the 8.02 million tonnes exported in October 2023. Brazil typically exports the majority of its corn during the safrinha harvest, and while that has been the case this year as well, the export volume between June and September was 25.59% lower compared to the same period in 2023.

The aforementioned decline can be attributed to several factors. Primarily, the severe dryness affecting the Central-West and Southeast regions has impacted corn production, leading to reduced export availability. According to the latest USDA report, corn production for the current 2023/2024 marketing year (MY) is projected to decrease by 15 million tonnes compared to the 2022/2023 MY. This reduction in Brazil’s total corn harvest is driven by two key factors: a decrease in the planted area due to low corn prices and lower yields caused by unfavorable weather conditions in critical growing regions.

Despite this decrease, it is important to note that the projected 120 million tonnes of Brazilian corn production for the current MY would still rank as the second highest on record, following last year’s output. However, the reduction in exports is expected to be more significant, with the USDA projecting a decline of 8.2 million tonnes (-15.2%) year-over-year. Increased domestic consumption, driven largely by Brazil’s expanding corn ethanol industry, has compounded the reduction in corn available for export. This trend is expected to intensify, as the new ethanol mills set to begin operations in 2025 will further boost domestic demand, contributing to the overall decline in exportable surplus.

Last year, China accounted for 31% of Brazil’s total corn exports, according to an ANEC report. However, this year, China’s share has dropped significantly, contributing only 8% to Brazil’s corn exports. In contrast, Egypt has seen the largest increase, raising its share from 3% in 2023 to 12% in 2024, thus surpassing China as the largest importer of Brazilian corn. This shift has also led to a notable reduction in tonne-mile demand. Favorable weather conditions in Northern and Northeastern China have resulted in record-high corn yields and production, reducing the need for imports. While Chinese buyers are still open to importing when prices are favorable, higher Brazilian prices in 2024 have pushed China’s demand away from Brazilian stems. In 2023, Brazil’s abundant corn supply had driven FOB prices below those of its U.S. competitors, making Brazilian corn an attractive option. However, in 2024, Brazilian FOB Santos prices have risen above those of the U.S. and Argentina, prompting China to seek cheaper alternatives. Moreover, China’s strong domestic corn production has led to an overall reduction in imports for 2024. Food security remains a top priority for China, with a strategy focused on curbing reliance on imports. Earlier this year, Chinese authorities instructed traders to limit overseas corn purchases due to the swelling domestic supply. This directive aligns with the government’s long-term goal, as outlined by Li Shengjun, director of China’s National Grain and Oils Information Center, to eliminate dependence on corn imports. As domestic corn supply and demand are expected to reach a balance in the coming years, and production is forecasted to exceed demand within the next decade, China’s corn imports are likely to remain very low.

Lastly, weather disruptions are creating logistical challenges for any potential increase in Brazil’s corn exports. A widespread drought in the country has severely affected transportation, halting the movement of barges along key waterways that connect rivers to Brazil’s northern ports, particularly the Madeira and Tapajos rivers. While, according to ANEC’s general director, grain shipments have not come to a complete stop due to traders exercising caution, delays in exports have occurred, and rising transportation costs may have contributed to a reduction in export volumes as traders opt for alternative strategies.

Looking ahead, according to the USDA report, Brazil’s next marketing year is projected to see increases in both corn production and export volumes, potentially reaching 127.0 million tonnes and 49.0 million tonnes, respectively. In the longer term, the strategic allocation of more corn toward ethanol production and domestic animal feed is expected to shift a larger share of the crop to domestic consumption. This would mitigate the impact of any further decline in global demand for Brazilian corn but could negatively affect the freight market as export volumes may be reduced.

 Lastly, weather disruptions are creating logistical challenges for any potential increase in Brazil’s corn exports. A widespread drought in the country has severely affected transportation, halting the movement of barges along key waterways that connect rivers to Brazil’s northern ports, particularly the Madeira and Tapajos rivers. While, according to ANEC’s general director, grain shipments have not come to a complete stop due to traders exercising caution, delays have likely occurred, and rising transportation costs may have contributed to a reduction in export volumes as traders opt for alternative strategies.

Looking ahead, according to the USDA report, Brazil’s next marketing year is projected to see increases in both corn production and export volumes, potentially reaching 127.0 million tonnes and 49.0 million tonnes, respectively. In the longer term, the strategic allocation of more corn toward ethanol production and domestic animal feed is expected to shift a larger share of the crop to domestic consumption. This would mitigate the impact of any further decline in global demand for Brazilian corn but could negatively affect the freight market as export volumes may be reduced.