Record Corn Harvest as Second Crop Production Surpasses First Crop; Exchange Rate Boosts Rice Exports; Tight Wheat Supplies Characterize Market
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USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT
Required Report - public distribution
GAIN Report Number: BR0814
Grain and Feed Update
Record Corn Harvest as Second Crop Production Surpasses
First Crop; Exchange Rate Boosts Rice Exports; Tight
Wheat Supplies Characterize Market
Post raises 2011/12 corn production estimate to 71 million metric tons, due to optimal weather. Corn
export records are anticipated for 2011/12 and 2012/13. Thanks to a favorable exchange rate, 2011/12
rice exports have proven robust even without government support. Rice consumption trends
downward. Tight wheat supplies are anticipated for 2011/12 and 2012/13. Wheat production area is
forecast to lose area to corn and soybeans.
Wheat Brazil 2010/2011 2011/2012 2012/2013
Market Year Begin: Oct 2010 Market Year Begin: Oct 2011 Market Year Begin: Oct 2012
USDA Official New Post USDA Official New Post USDA Official New Post
Area Harvested 2,150 2,150 2,170 2,170 2,100 2,000
Beginning Stocks 2,598 2,598 1,862 1,862 1,762 1,162
Production 5,900 5,900 5,800 5,700 5,000 5,200
MY Imports 6,699 6,699 7,300 6,500 6,700 7,000
TY Imports 6,746 6,746 7,000 6,300 7,000 7,100
TY Imp. from U.S. 405 405 0 500 0 700
Total Supply 15,197 15,197 14,962 14,062 13,462 13,362
MY Exports 2,535 2,535 2,000 1,600 500 1,500
TY Exports 2,539 2,539 1,850 1,600 500 1,500
Feed and Residual 200 200 500 600 200 300
FSI Consumption 10,600 10,600 10,700 10,700 10,800 10,800
Total Consumption 10,800 10,800 11,200 11,300 11,000 11,100
Ending Stocks 1,862 1,862 1,762 1,162 1,962 762
Total Distribution 15,197 15,197 14,962 14,062 13,462 13,362
1000 HA, 1000 MT, MT/HA
2012/13 Wheat Supplies: 2012/13 area harvested to wheat is forecast at two million hectares, eight
percent lower than the estimated 2011/12 harvested area and five percent lower than the official USDA
forecast. Liquidity concerns and the conversion of wheat production to corn production are responsible
for this significant decrease in production area. In comparison with other commodities, particularly
soybeans and corn, wheat traditionally has had very low liquidity. Many producers are moving away
from wheat production in the pursuit of greater economic certainty. In addition to increased liquidity,
corn production holds the appeal of higher profit margins for producers. Many of these producers plant
wheat in the winter and then soybeans in the spring. A certain symbiotic relationship has developed
between wheat and soy in the South. With the forecast shift to corn, many producers, particularly in the
state of Paraná, will continue to plant soybeans in the spring and then second crop corn in the late
summer. Forecast production at 5.2 million metric tons (mmt) is 13 percent lower than 2011/12
production, due to the decline in production area. Post’s production forecast, four percent higher than
the official USDA forecast, reflects historic yields; there has been little to indicate that yields will be
other than normal.
Post forecasts tight supplies for 2012/13, given the reduction in harvested area and the shrinking
quantity of wheat available for export from Argentina, Brazil’s largest wheat supplier.
2012/13 Wheat Trade: As a result of the forecast decline in production, many are already predicting
that 2012/13 wheat imports will register the largest import volume in six years. Imports are forecast at 7
mmt. As Brazil’s Mercosul partner countries will have a difficult time meeting Brazil’s consumption
needs, Post forecasts imports of 700,000 mt of U.S. wheat.
2011/2012 Wheat Supplies: There is little change in 2011/12 production estimates: the estimated area
harvested to wheat is maintained at 2.17 million hectares, and production estimated at 5.7 mmt. In line
with Post’s earlier reporting, production has indeed shifted south. Paraná’s production is the lowest in
five years. For the first time in 12 years, the state of Rio Grande do Sul overtook the state of Paraná as
the state with the largest amount of area harvested to wheat. One reason for this shift is that producers
in Rio Grande do Sul have been tempted to plant wheat as a way to recover from the losses resulting
from the December-January drought that significantly reduced corn and soybean yields, subsequently
taking a hit out of their profitability. Another factor is that wheat producers were pleased with the last
year’s yield and higher product quality. The climate in Rio Grande do Sul has proved itself more
propitious. Nevertheless, frosts at the end of the winter can still jeopardize yield and quality. Finally
and most importantly, Paraná producers are looking to plant more soybeans and corn instead of wheat.
Many regions in the state of Paraná are able to harvest second crop corn (safrinha) and producers in
these regions over the past two to three years have been gradually shifting from wheat to second crop
corn production. Unless there are drastic movements in prices and liquidity, this production shift will
become the new reality in the South. Rio Grande do Sul is unable to produce second crop corn: wheat
does not face the threat of second crop corn there.
2011/12 stocks will be tight. 2011/12 carry-over wheat stocks are some of the lowest on record. Brazil
is facing a trend of diminishing domestic area harvested to wheat. In addition, production regions in its
Mercosul partners, who have traditionally provided Brazil with the majority of its wheat imports, are
decreasing by an estimated average of seven percent. As domestic wheat consumption is slowly
increasing, Brazil will need to look to alternate suppliers if Mercosul partners are unable to meet
Brazil’s consumption needs.
2011/2012 Wheat Trade: 2011/12 wheat exports are estimated at 1.6 mmt, 20 percent lower than the
official USDA estimate, and imports are estimated at 6.5 mmt, 12 percent lower than the official USDA
Imports have been particularly affected by the growing conditions in Brazil and in its Mercosul partners,
especially Argentina. Imports were particularly high for May and June, as many mills and trading
companies began accelerating imports in anticipation of a reduced harvest.
Brazil’s agricultural support program, the Premium for Product Flow (PEP), has been significantly
aiding wheat exports. In so far as wheat exports have benefitted from PEP, there are two important
factors affecting the eligibility of product: (i) the new minimum price and (ii) the new quality standard.
(i) The New Minimum Price: many of Brazil’s agricultural support programs hinge on the
stipulated minimum price, a price of reference that triggers a product’s eligibility for
participation in the program. The minimum prices for winter crops, including wheat,
were revised and published on May 7, 2012. The minimum price for wheat, active July
2012 to July 2013, was raised from US$238.50 (R$477) to US$250.50 (R$501) per ton.
(ii) The New Quality Standard: after years of intense political discussions that pitted
producer groups against industry groups, a new quality standard came into force this
July. Domestic producers and industry have been at odds as the former have tended to
place greater emphasis on yield and agronomic characteristics of the wheat produced and
the latter have tended to place greater emphasis on the wheat quality and milling
characteristics. The new standard, known as Normative Instruction 38, is anticipated to
have a two-fold effect. On the one hand, producers that meet the standard can get a
better price for their product, as the wheat quality average should rise. On the other
hand, producers who are unable to meet the quality standard will be unable to qualify for
Post’s preliminary analysis has estimated at least 2.53 mmt of wheat has been auctioned this year
through PEP. This represents 44 percent of the total wheat production. Undoubtedly, these estimates
under-represent the true support to be verified/confirmed at the end of the year.
Wheat Program (Aug-Jul Year) 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12*
PEP 0 425.5 1,113.20 3,261.30 1,786 2,525
P .00 roduction 0 2,233.70 4,081.90 5,026 5,881.60 5,700
Percentage of Total Production 0.00% 19.05% 27.27% 64.89% 30.37% 44.30%
Supported by PEP
Unit: 1,000 metric tons; percentage
*Pos t's preliminary estimates
Corn Brazil 2010/2011 2011/2012 2012/2013
Market Year Begin: Mar 2011 Market Year Begin: Mar 2012 Market Year Begin: Mar 2012
USDA Official New Post USDA Official New Post USDA Official New Post
Area Harvested 13,800 13,800 15,200 15,000 15,800 16,000
Beginning Stocks 9,989 9,989 10,276 10,276 13,076 15,126
Production 57,400 57,400 70,000 71,000 67,000 69,000
MY Imports 791 791 800 850 800 800
TY Imports 287 287 1,100 950 800 800
TY Imp. from U.S. 0 0 0 0 0 0
Total Supply 68,180 68,180 81,076 82,126 80,876 84,926
MY Exports 8,404 8,404 14,000 13,000 12,000 13,500
TY Exports 11,583 11,583 11,000 11,500 12,500 14,000
Feed and Residual 42,500 42,500 46,000 46,000 47,500 47,500
FSI Consumption 7,000 7,000 8,000 8,000 8,500 8,500
Total Consumption 49,500 49,500 54,000 54,000 56,000 56,000
Ending Stocks 10,276 10,276 13,076 15,126 12,876 15,426
Total Distribution 68,180 68,180 81,076 82,126 80,876 84,926
1000 HA, 1000 MT, MT/HA
2012/2013 Corn Supplies: 2012/13 forecast area harvested to corn is raised to 16 million hectares, a
slight increase over the official USDA forecast and an eight percent growth from the 2011/12 harvested
area. Post forecasts production at 69 mmt; this production forecast is three percent lower than the
2011/12 production estimate. In reality, Post is forecasting the 2012/13 production based on average
yields and growth trends. As such, 2011/12 production has been atypical, a unique result of (i) on-time
second crop planting thanks to new shorter-season soybean varieties, (ii) phenomenal weather patterns
during the second crop (excellent precipitation and the lack of abnormal destructive weather events),
(iii) and increased last-minute decisions to plant second crop corn based on the heavy loss of first season
corn due to the summer drought. 2012/13 production will have increased harvested area. Second crop
corn production will continue to grow and outstrip first crop corn production. Second crop corn
production will increase in all states possible in the South, Southeast and Center-West, with marked
growth in Mato Grosso and Paraná. The second crop corn will be augmented thanks to a number of
states in the Northeast also entering the second crop corn production arena. Questions remain
concerning the logistics involved in moving the corn from production regions to consumption regions,
and in particular to export markets. Some analysts envision a slight decrease in the 2012/13 area
harvested to first crop corn, while other analysts foresee that harvested area holding steady or even
increasing 2-3 percent. At the end of the day, area harvested to first crop corn will be contingent on
world prices, which will be linked to the U.S. corn crop yields. Any minimal decrease in 2012/13 area
harvested to first crop corn will be entirely offset by the increase in area harvested to second crop corn.
2013/2013 Corn Trade: Post forecasts 2012/13 corn exports at 13.5 mmt, which could be a record
export year, contingent upon Brazil’s highly-anticipated 2011/12 corn export performance. Some
analysts have recently predicted exports even reaching 16-17 mmt. While a possibility, logistical
bottlenecks, increased domestic consumption trends, and international competition will be restraining
factors. Imports are held steady at 800,000 mt.
2011/2012 Corn Supplies: The 2011/12 area harvested to corn is estimated at 15 million hectares, an
eight percent increase from the 2010/11 area harvested to corn. This estimate is slightly lower than the
official USDA estimate, as many analysts believe that the record corn crop is more a factor of yield
increases in the second crop corn as opposed to the increase in area harvested to second crop corn.
Overall, the 2011/12 area harvested to second crop corn increased by 61 percent. In Mato Grosso alone,
the second crop corn production is estimated at 14.2 mmt, a massive 104 percent increase from the
2010/11 second crop corn production. In some of the largest production regions of Mato Grosso (e.g.,
Sorriso), average yields are reaching 6-6.6 mt/hectare.
Safrinha is no longer Safrinha: safrinha, the Portuguese term for the small harvest, officially became a
misnomer as the safrinha, or the second crop corn, is estimated to have surpassed the first crop corn
production, safra. Undoubtedly the summer drought took a toll on the first crop corn production.
Regardless, second crop corn production will continue to grow and occupy ever more space in Brazil.
First crop corn production may swing back to exceed second crop corn production in 2012/13, but Post
believes it is inevitable within the next 1-3 years that it will become a new trend for the second crop
corn to out-produce the first crop corn.
First Crop Corn Production
Second Crop Corn Production
Delayed implementation of new corn quality standard: the Brazilian Government announced a delay
in the implementation of Normative Instruction 60/2011, as stated in Announcement 611 which was
published on July 5, 2012. Normative Instruction 60/2011 contains new identity and quality standards
for corn sold in Brazil; initially slated to enter into force on July 1, 2012, the standard has had its
implementation postponed until September 1, 2013. The stated rationale for the delay was to provide
producers with more time to adjust to the new classification system, a system that must be used to make
producers eligible to participate in government programs. Major changes follow:
1. acceptable humidity level moves from 14.5 percent to 14 percent
2. reduction of foreign material and impurity shifts from three percent to two percent
3. reduction in the varied defects alters from 27 percent to 20 percent
Brazilian corn prices have benefitted from the drought in the United States. In mid May, analysts and
traders became aware of the super second crop corn harvest and prices began to decrease as a response.
However, reports of the drought in the United States began to bolster the market and prices have risen
and stabilized over the last weeks, following the general trends of the global market. The U.S. drought
proved to be a boon to Brazilian corn producers, sparing them low prices in a market flush with excess
supply. If sales continue to go as they have gone over the past month and prices continue to rise, as
expected till mid-August, agricultural producers will look to corn production very favorably for the next
Storage for this record second crop corn harvest will be difficult to come by. Brazil’s storage capacity
has been limited as it is, but the additional production will place increased pressure on a traditional
logistical bottleneck that has been already squeezed. Nevertheless, those with storage capacity will most
likely hold their production in storage to hold out for peak prices.
2011/2012 Corn Consumption: Domestic livestock producers have benefited from the abundant
domestic supply of corn but are noting that the prices of soy meal, another typical feed ingredient
blended with corn, are up 70 percent in comparison with this same period last year. As such, livestock
producers are claiming that feed prices increased 30 to 40 percent in comparison to last year. Swine and
poultry producers are experiencing the feed price squeeze.
2011/2012 Corn Trade: 2011/12 corn exports are estimated to reach record highs at 13 mmt. Post
bases its estimate, which is seven percent lower than the official USDA estimate, on historical export
trends, coupled with the available supply. The first four months of the 2011/12 marketing year
registered the highest export levels over the last three years, but in reality, these exports were
significantly lower than the same period of time from 2005 to 2009. Exports are expected to be strong,
given international demand. Furthermore, the abundant supply of corn in Brazil can definitely facilitate
Export paths: Almost half of all Brazil’s corn exports are leaving through the Port of Paranaguá, in the
state of Paraná. This includes both the first and second crop corn. The western region of the state of
Bahia, a fertile plateau known for its high agricultural productivity, is exporting corn for the first time in
2011/12. Western Bahia has already had a tradition of exporting soybeans and cotton. As the region
increased its corn production this year by 60 percent, western Bahia continues to lead average corn
yields in Brazil with an average of 9.3 mt/hectare. Western Bahia has filled at least five ships at the
state’s Port of Ilheus with corn destined for international markets.
China factor: In early June, the Government of China presented to Brazil a formal bilateral protocol,
defining sanitary and phytosanitary specifications, that would facilitate Brazilian corn exports to China.
China and Brazil first met back in February/March of 2012 to discuss China’s interest of supplementing
its Northern Hemisphere corn imports with Southern Hemisphere corn imports. It was rumored that
Brazil and China would both sign the protocol on the margins of the Rio+20 Conference in late June.
However, it appears that the signing did not take place. While it was expected that the protocol would
take immediate effect, varieties and volume eligible for export have not been defined. Argentina also
received a protocol from China in February but protocol negotiations are ongoing.
The Price of Product Flow (VEP) is the sister program of Brazil’s Premium for Product Flow Program
(PEP). When market prices dip below the official minimum price, PEP auctions negotiate contracts for
private stocks at the market price plus a premium paid by the government. VEP functions in the same
way except that it auctions public stocks instead of private ones. In late May, the Brazilian Government
announced that it would auction 500,000 mt of public stocks of corn to supply the drought-stricken
regions of the Northeast of Brazil. Throughout June and into July, multiple VEP auctions have taken
place. All VEP auctions have specified that the purchases would need to have specified states in the
North and Northeast as their final destination. These announcements precluded the option of
Auctioned (mt) Sold (mt) Premium (US$)
June 120,000 37,721.12 $5,375,270
July* 30,000 5,857.50 $780,835
Unit: 1,000 metric tons; US$
*As of July 11, 2012
In government and industry meetings prior to the price escalation caused by the drought in the United
States, there had indeed been discussion on whether the Brazilian government should activate PEP
auctions for corn should contract options fail to provide producers with the needed support. This
possibility should be moot in the current environment of high prices.
Rice, Milled Brazil 2010/2011 2011/2012 2012/2013
Market Year Begin: Apr 2011 Market Year Begin: Apr 2012 Market Year Begin: Apr 2012
USDA Official New Post USDA Official New Post USDA Official New Post
Area Harvested 2,833 2,833 2,450 2,450 2,750 2,400
Beginning Stocks 550 550 803 803 383 223
Milled Production 9,300 9,300 7,860 7,820 8,670 7,820
Rough Production 13,676 13,676 11,559 11,500 12,750 11,500
Milling Rate (.9999) 6,800 6,800 6,800 6,800 6,800 6,800
MY Imports 632 632 700 700 610 650
TY Imports 591 591 660 690 610 620
TY Imp. from U.S. 0 0 0 0 0 0
Total Supply 10,482 10,482 9,363 9,323 9,663 8,693
MY Exports 1,479 1,479 850 1,200 900 700
TY Exports 1,296 1,296 900 1,450 900 850
Consumption and Residual 8,200 8,200 8,130 7,900 8,100 7,800
Ending Stocks 803 803 383 223 663 193
Total Distribution 10,482 10,482 9,363 9,323 9,663 8,693
1000 HA, 1000 MT, MT/HA
2012/2013 Rice Supplies: The 2012/13 forecast area harvested to rice is lowered to 2.4 million
hectares, 13 percent lower than the official USDA forecast and a two percent decrease in area harvested
to rice compared to the 2011/12 area.
A general trend indicates that area harvested to rice has gradually decreased over the decades but that
yield increases have more than compensated for the loss in area. After excessive oversupply in
2010/11, many of the rice producers located in suitable growing areas opted for soybean and corn
production in 2011/12. Post forecasts that most of these producers will not return to rice production in
2012/13 but rather continue in alternate crop production and that area harvested to rice will further
decrease. Better financing options and price concerns are driving factors in this production shift.
2012/2013 Rice Trade: 2012/13 rice exports are forecast at 700,000 mt, a steep 30 percent drop from
the 1.2 mmt estimated in exports from 2011/12. A short supply, consisting of low carry-over stocks and
decreased production, will leave very little rice available for export. The only conceivable factor that
could boost export numbers will be an increase in imports. However, imports are forecast at 650,000
mt, in line with historical trends.
2011/2012 Rice Supplies: 2011/12 area harvested to rice is held constant at 2.45 million hectares and
production is estimated at 11.5 mmt. The harvest concluded in May.
2011/2012 Rice Consumption: Over the years, there has been a consistent decrease in rice consumption
in Brazil, due to (i) the growth of the middle class and perceptions, and (ii) the inability of the Brazilian
rice industry to meet the needs of the modern consumer.
(i) Middle class growth and perception: Brazil’s middle class has been consistently growing over
the past decade, with this growth particularly apparent in the last five years. These new
consumer entrants to the middle class frequently look to other products instead of rice. Rice and
beans, while hailed by many researchers as an ideal staple diet that meets the Brazilian
consumer’s nutritional needs, are frequently perceived as the food of the lower classes. Many
new middle class consumers try to differentiate themselves from the lower classes by shopping
for different types of food and eschewing—or, at a minimum, reducing—rice consumption. This
has been a significant trend leading to overall lower domestic rice consumption in Brazil.
(ii) The Brazilian rice industry has been slow to adjust its products to the needs and desires of the
modern consumer. Middle class consumers, and consumers across the board, are looking for
ready-to-eat food dishes or dishes that are quick and easy to prepare. While the average middle
class Brazilian consumer may reduce purchases of traditional bags of rice at the supermarket, he
or she may be quick to purchase and consume prepackaged dishes with already prepared rice, or
processed meals that include rice along with meats, vegetables and other types of food.
However, these products are not readily available and consumption has continued to decrease.
2011/2012 Rice Trade: 2011/12 rice exports are estimated at 1.2 mmt, 14 percent higher than the
official USDA estimate. Unlike the past two years, thus far in calendar year 2012 all rice exports have
been negotiated without subsidies from the Brazilian Government. Brazilian rice exports have benefited
from the depreciation of the Brazilian real. Without the exchange rate factor, exports would not reach
their estimated level. Post opines that the growth of Brazilian rice exports is not a flash in the pan.
With or without the government subsidies, the Brazilian industry and producer groups are keen to
continue exporting rice in increasing quantities. As noted for 2012/13, export feasibility is contingent
upon product availability. Brazil’s target export markets will continue to be Africa, Central America
and the Middle East.
In its annual exercise to revise minimum prices in late June, the Brazilian government held constant the
minimum price for rice. There had been speculation that an upward-revised minimum price could
enable the PEP program to be reactivated. While public funds were allocated for PEP auctions for rice,
rice prices have been robust. As it is unlikely to be activated, the funding allocation was interpreted by
most analysts as a political signal, a government safety net and guarantee for rice producers.
Rice stocks are tight. Furthermore, most of the current stocks are publicly held, as private stocks
continue very low. The industry, concerned by the possibility of the short supply leading to price
escalation and unhealthy inflation rates, has been asking for and anticipating the government’s auction
of public stocks via the VEP support program. Theoretically, the government could stipulate in the VEP
announcements, as has been done with June/July VEP corn announcements, that the product be shipped
exclusively to domestic locations in need. Whether that be the case or not, VEP auctions would either
directly or indirectly aid Brazilian rice exports merely by augmenting the total supply available.
Brazil’s Mercosul Imports: The primary countries supplying Brazil’s rice imports are its Mercosul
partner countries. In 2004, a legislative error exempted rice imports of the PIS/Cofins tax, an
exemption intended only for domestic production. Since then, rice imports have been exempted from
paying the 9.25 percent tax. In late July 2012, Brazil’s House and Senate will vote on a measure to
remove the PIS/Cofins exemption from rice imports, thereby making domestic producers more
Mercosul continues to shape Brazil’s trade panorama. The tariff exemptions granted to Mercosul
partners are a large factor leading to these countries’ export competitiveness in Brazil, particularly in the
commodities rice and wheat, among others. Mercosul partners consistently supply Brazil with abundant
wheat imports and Brazil’s relatively scant rice imports are also primarily from Mercosul partners.
Worthy of note are the evolutions in Mercosul. In July, Venezuela was voted into Mercosul as a full
member. U.S. industry members, and particularly bulk commodity exporters, should be wary of the
impact Venezuela’s addition to Mercosul could have on U.S. commodity competitiveness (e.g. rice) in
Venezuela. Further market opportunities and challenges may arise as Mercosul evolves.
Related Report References:
2012 Brazil Annual Grain and Feeds Report
April 2012 Brazil Annual Grains and Feed Update