Sao Paulo — Brazilian and Argentinian corn farmers had to juggle many balls at once in 2019, and that will again be the case in 2020, as volatility caused by a devastating disease on the other side of the globe and domestic political scenarios is set to continue.
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Brazil and Argentina benefited from good weather in 2019 during seeding and again during the development stage, resulting in a bumper crop.
According to the US Department of Agriculture, Brazilian farmers' harvest, including the first and second crops, topped 100 million mt of the cereal for the first time. Argentinian farmers also harvested a record crop of more than 50 million mt of corn for the first time in history.
Brazil's 2019-20 total corn crop is expected by market analysts to be around 100 million mt, but as the majority of the country's corn crop is planted after the soybean harvest, and soybean seeding was delayed initially, it is too early to say with confidence whether this volume will be repeated or surpassed.
The Argentinian corn crop for the 2019-20 season is also expected to be very good, at around 50 million mt, according to USDA. Corn planting was initially delayed by low soil moisture, but has already reached the five-year average of more than 50% of the expected area by mid-December. Development conditions for January are expected to be favorable, but the weather is still a risk to producers' hopes.
Domestic corn consumption in Brazil increased in 2019 compared with previous years as a result of two factors that will remain front and center in 2020.
SWINE FEVER
Firstly, African swine fever outbreaks in Asia increased demand for imported poultry and pork. The higher demand, combined with a stronger US dollar against the Brazilian Real, led Brazil to increase hog production for export which, in turn, boosted domestic corn demand.
Second, corn usage for ethanol production also rose during the past year, with new corn only and flex - sugarcane and ethanol - mills in Brazilian center-west regions. According to the Corn Ethanol National Union (UNEM), five new plants will be ready in Mato Grosso by 2021. There are also projects planned in Roraima and Goias states.
According to private analyst Agroconsult, domestic corn consumption in Brazil is expected to increase to 66.3 million mt in 2020 from 62.4 million mt in 2019. This increase is largely expected to be biased toward animal feed requirements, which are expected to increase to 53.4 million mt from 51.1 million mt, and ethanol production, where demand is forecast to rise to 4 million mt from 2.7 million mt.
Corn exports in 2019 posted fresh records in both South American countries. The early harvest and the record yield from the second corn crop in Brazil of more than 5.8 mt/ha, combined with a good crop size in Argentina, pressured FOB prices, attracting demand from elsewhere in the world. In the first 11 months of 2019, Brazil and Argentina exported more than 70 million mt of corn between them.
As Brazilian exports were strong at the second half of the year, stocks are expected to end 2019 lower than usual, and imports from other origins might be necessary to fulfill domestic demand before the harvest of the second crop in June and July 2020. According to market sources, most of the imports will come from Argentina and Paraguay, but additional origins, such as the US, are also possible.
Brazilian corn exports are forecast to total 40 million mt between February 2019 and January 2020, according to Conab, the government's food supply and statistics agency. But estimates from the market, including Conab and S&P Global Analytics, predict exports of between 30 million mt and 36 million mt in the following year.
In Argentina, producers have already sold a good volume of 2020 crop to exporters, which could ensure a good start of the new crop export season in March and April.
As there are many uncertainties about the political situation in the country, the maintenance of such strong export volumes in 2020 will be closely linked to farmers' inclinations when it comes to sales. Argentinian corn producers consider their production as an asset valued in US dollars and might hold onto stocks if they believe there is more uncertainty ahead, reducing the country's exports.
S&P Global Platts Analytics expects Argentina to export 33 million mt of corn in the 2019-2020 marketing year (March 2020-February 2021), compared with the USDA's estimate of 36 million mt for the 2018-19 marketing year.
POLITICAL CHANGE
Both of the two largest South American countries faced uncertain political situations over the past 12 months.
In Brazil, President Jair Bolsonaro took the office in early January and while his first year in the post has been controversial, some economical advances were possible.
After months of negotiations, Congress approved pension reforms, inflation became more manageable at less than 4% a year and official interest rates ended the year at the country's lowest ever level of 4.5% a year. However, Brazil is still struggling to boost its GDP and was expected to end the year with a growth rate of slightly more than 1%.
Despite slow economic growth, the Brazilian agribusiness sector is growing faster than other areas of the economy, according to Applied Economic Research Institute (Ipea). Agribusiness GDP will expand 1.4% in 2019 and 3.2% to 3.7% in 2019, according to Ipea. And Conab in December forecast a total grains production increase of 1.9%. When drilling down, for corn the forecast estimates an increase of 0.3% in the planted area, but a 1.6% decrease on production due to a lower yield.
Argentina's political situation was even more complicated.
The center-left candidate - Alberto Fernandez - won the presidential election in the first round in October, and took the office in early December. Uncertainties about commodity export taxes were rife. The taxes were raised from 4 pesos/$ to a fixed percentage of 12% by the new government in its first week on the job and could be raised an additional 3% before the end of the year. Observers say further shifts cannot be ruled out.
That forced Argentinian exporters to hurry up their corn export registrations for 2019 and early 2020 loadings to pre-empt any potential tax increases in the months ahead.
Producers were more reticent to sell their remaining volumes, as they had already made substantial sales and consider their commodities a reserve of value in US dollars. Despite some reports of a slowing of sales by farmers after the elections, exporters will start 2020 with a large volume of corn bought for new crop loading.
In Brazil, the higher dollar and favorable prices in the local currency boosted sales for export in the second and third quarter of 2019, leading to a low availability of corn that could be sold on at the end of the year. In the fourth quarter, most of the origination was concentrated on the domestic market, as the feed market heated up on favorable meat-producing margins. Buyers were willing to pay a premium of up to $20 to the export market price to attract producers' interest and to keep the grain in the country.
-- Rafael Savoia, rafael.savoia@spglobal.com
-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com
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Commodities 2020: Argentinian, Brazilian corn producers to navigate rough seas again in 2020 - S&P Global
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