How Brazil can displace the US in corn exports – 07/08/2023 – Market

On the plains of the United States known as the Corn Belt, farmers spend their days and nights nurturing, caring and praying for the well-being of this common but globally significant food.

Scott Haerr, who harvests more than 1,600 hectares every year (an area equivalent to more than 1,500 football fields), is one of them.

Inside a massive silo on his farm in western Ohio, the third-generation farmer sifts through corn kernels from last year’s harvest.

“It’s really good corn,” he says, sifting through a handful.

But while the quality of last year’s harvest may have been good, the quantity produced by American farmers was not.

The increase in fertilizer and fuel prices has caused the number of hectares planted to drop significantly compared to 2021.

In addition, a drought in the western plains has fueled an increase in the price of US corn on the international market.

“We had a reduced harvest because of the weather and the Mississippi River drying up last fall and the beginning of winter, which really slowed down our exports,” says Haerr.

“Because of this, the price of corn has gone up, which has made us less competitive.”

The hard work and technological expertise of American farmers has cemented its place at the top of corn exports.

Every year, tens of millions of tons are shipped from the US to over 60 countries around the world.

But its corn superpower status may be coming to an end.

Buyers in China — the world’s biggest corn importer — are canceling orders from the United States, largely because cheaper alternatives exist elsewhere.

In January, US corn sales to China were 70% below year-ago levels.

And in May, China started buying South African corn for the first time. It’s a worrying trend for US farmers.

Indeed, after decades at the top, it is about to be overtaken as the world’s biggest exporter of the crop — and Brazil is in the running to take its place.

Brazil’s rise

In an analysis released on the website of the Center for Advanced Studies in Applied Economics at the University of São Paulo (Cepea/USP), professor Lucílio Alves points out that Brazil should ship a volume of corn equivalent to that of the United States in the 2022/23 harvest.

There will be 51 million tons between October 2022 and September 2023, according to estimates by the US Department of Agriculture released in February.

“This scenario can be verified for the first time for Brazilian exporters”, pointed out Alves.

In the United States, it’s not just China that is moving away from domestically grown corn.

Exports to all countries except China were at their second lowest level in two decades, as reported by Reuters.

Mexico, which buys about $5 billion (R$24.6 billion) of corn from the United States every year, is preparing to limit imports of the genetically modified variety, a large amount of which comes from its neighbor in the north.

Meanwhile, in Brazil, farmers have been converting swaths of agricultural land from pasture to cornfields in recent years, experts say.

Brazil’s added advantage is that its farmers can harvest not just one but two crops of corn a year.

“Last year in particular, they had a lot more exportable inventory than we do here in the United States,” says Frayne Olson, an agricultural economist at North Dakota State University.

“The long-term trend is that Brazil is increasing its corn production, it is becoming a much more dominant player.”

The analysis by Lucílio Alves, from Cepea/USP, points out that Brazil may surpass the United States as the world’s largest corn exporter. In Brazil, the increase in exports results from an internal production surplus estimated at around 55 million tons for both the 2021/22 and 2022/23 harvests, according to the National Supply Company (Conab).

China has been significantly increasing its orders for Brazilian corn.

The two countries also signed a series of agreements that will allow more corn to be shipped from Brazil to China.

China’s move to diversify food imports is likely spurred by a combination of factors, according to Harry Murphy Cruise, an economist at Moody’s Analytics focused on the Asian country.

china vs usa

Beyond the price issue, rising tensions between the United States and China are prompting Beijing to quickly diversify should the situation deteriorate further.

“Trade is a key tool in every policymaker’s arsenal,” he said.

“There is a possibility that China is using trade as a form of economic coercion.”

Cruise said that battles over products such as semiconductors, electronics and batteries are not the only examples of how China has changed its trade relationship with the United States.

“It’s broader than that,” says Cruise, noting that China is looking to mitigate risk and strengthen supply chains for essential goods.

“Food and feed for livestock is critical.”

In the United States, corn prices are high for many of the same reasons most other goods and services are expensive today: inflation.

For farmers, rising costs for machinery, seeds and farmland have hurt their bottom line.

“When you look at the biggest differential in the cost of producing corn in the US versus Brazil, South Africa or Argentina, it’s probably land,” says Frayne Olson.

The price per acre of land in Iowa, the largest corn producing state in the US, increased 29% in 2021 and another 17% in 2022, the highest on record. In Illinois, the second-largest corn producer, land rents hit record highs last year.

Economists say, however, that Brazil’s rise should not have a major impact on Americans’ daily lives — agriculture does not carry the same economic weight as it did decades ago.

“Agriculture is important — food supply is critical — but it’s not a big part of the whole economy,” says Olson.

Farmer Scott Haerr, meanwhile, says he doesn’t plan to reduce the number of acres of corn he plants, as the cost of fertilizer and fuel has fallen from last year’s highs.

“But we’re ready to pivot if we need to,” he says. He believes there is little that can be done to stop Brazil’s rapid rise, but that doesn’t mean American farmers are out of the export game.

“Indonesia is not importing corn at the moment, but its growth potential for ethanol (made from corn) is huge,” he says. Earlier this year, he and other Ohio corn farmers visited Southeast Asian countries to hear firsthand what buyers want.

“We need to make sure we’re trying to develop new markets,” he says.

*Reporting by Stephen Starr in Clark County, Ohio and BBC’s Derek Cai in Singapore.

This text was originally published here.