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Brazilian corn muscles in on turf of U.S. Exporters

Brazilian corn exporters are enjoying a banner year thanks to a big crop and improved logistics, burnishing the country’s status as a top global corn supplier and threatening the United States’ traditional dominance in the arena.

The United States is likely to remain the leading exporter for now, but Brazilian corn has recently been capturing more business from traditional U.S. customers than before. Some of that is due to this year’s circumstances, but some of the gains could be more permanent.

Through October, Brazil had exported 34.7 million tonnes of corn in 2019, a staggering 60% more than the prior record for the period, according to official Brazilian data. That includes an all-time monthly record of 7.3 million tonnes back in August.

By comparison, the United States exported about 36.2 million tonnes of the yellow grain during the same period, down 40% from a year earlier.

Brazil harvested a record-large corn crop earlier this year, around 19 million tonnes more than in the previous cycle. Last year’s severe drought also curbed the harvest in Argentina, another key corn supplier.

Lighter South American supplies a year ago left global corn buyers seeking the cheaper, more abundant U.S. product, boosting exports there close to record levels.

But now the tables have turned. Huge South American corn crops for much of this year have been offered at significant discounts to the U.S. supply, which has faltered following an excessively wet growing season. The U.S. government projects that domestic corn exports will fall to a seven-year low, though some analysts fear that estimate may still be too optimistic.

Brazil exports close to four times as much corn as it did a decade ago, with sales really taking off after a string of poor U.S. crops from 2010 to 2012. Not all of the two countries’ corn customers overlap, but many do, and the recent trends highlight the risks of the expanding South American supply to U.S. exports.

Mexico and Japan are by far the most prominent foreign buyers of U.S. corn, responsible for 32% and 27%, respectively, of 2019 U.S. exports through September. Both of those countries are also among Brazil’s top destinations for the year, though Mexico has not always been a key player in the past.

Brazil has shipped about 1.4 million tonnes of corn to Mexico this year through October, nearly four times larger than the previous record for the period. October’s volume of 518,345 tonnes was an all-time high for any month.

Mexico’s recent desire for Brazilian corn has largely been driven by a lower acquisition cost relative to the U.S. supply, so it is inevitable that the pendulum will someday swing back in favor of the United States should Brazil’s crop stumble, for example.

But it has become increasingly easier for Brazil to ship corn to Mexico given the larger volumes that now flow out of Brazil’s northern ports, which are substantially closer to the destination. Recent projects to expand Mexican port capacity, particularly at the Port of Veracruz on the country’s east coast, will further facilitate the trade relationship. These factors will be a more permanent hurdle for American corn.

For example, about 1.97 million tonnes of corn left ports on Brazil’s northern coast last month, some 32% of the total, according to data from Williams Shipping Agency. In October 2015, which held the previous export record for the month, about 930,000 tonnes of the yellow grain were processed in Brazil’s north, some 17% of the total. That was a huge number at the time.

Mexico’s footprint on Brazil’s corn exports is still relatively small, accounting for just 4% of this year’s shipments, but it is still easily a record. Japan’s share is a much larger 14%, close to the previous maximum.

Brazil’s corn shipments to Japan have recently trounced those of its U.S. counterpart, totaling an unprecedented 4.3 million tonnes in the last four months. That compares with about 1.9 million tonnes of U.S. corn to Japan during the same period, the lightest since 1972.

In addition, U.S. corn sales to Japan for the 2019-20 year were at the lowest levels in at least two decades by the end of last month. Sales to Mexico were the smallest in four years.

On the other hand, Brazil is not at risk of the United States stealing its largest corn customer, Iran. Brazil this year has shipped 4.8 million tonnes of corn, some 14% of the total, to the Middle Eastern country through October. Iran was also the top destination for Brazilian corn in the previous three years, though Vietnam took the top spot in 2015.

The United States last shipped corn to Iran in 2015, amounting to around two cargoes.
Source: Reuters (Editing by Matthew Lewis)

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