March 12th, 2014

Corn Futures – The return of rain to corn-growing areas of Brazil, the world’s second-largest exporter, is threating to cut output after dryness earlier this year delayed planting of the country’s second annual crop.

While dryness in most producing areas in the month to Feb. 15 delayed sowings, the return of rain compounded the lack of sunshine to slow crop development, according to Marco Antonio dos Santos, an agronomist at Sao Paulo-based weather forecaster Somar Meteorologia. Too much rain in Mato Grosso, the biggest producing state, meant growers couldn’t harvest their soybeans in time, which postponed replanting of fields with corn.

“When it’s wet you just can’t run the planters, everything washes away and it just gets muddy,” Christopher Narayanan, an agricultural commodities analyst at Societe Generale SA in New York, said by phone yesterday. “If things are delayed too much they may stop planting, they may plant less acres than they originally thought.”

Farmers in Brazil are planting the second of two annual crops, which is usually harvested starting in May. The so-called safrinha crop accounted last year for 57 percent of total output, government data show. Dryness may cause losses of as much as 25 percent of the first corn crop in some states while yields of the second harvest may drop, dos Santos said.

Northern Mato Grosso, an area accounting for 27 percent of Brazil’s second corn crop output, got 21 percent more rain than the historical average over the past month, according to data from Somar and the Geographical and Statistical Brazilian Institute on Bloomberg. Wetter-than-average weather has extended into the southwest of Mato Grosso do Sul and the south of Goias, each of the regions accounting for about 11 percent of national output of the safrinha crop.

Corn Futures: Cutting Estimates

Brazil will produce 69 million metric tons of corn in total from both crops in the 2013-14 season, according to Societe Generale. That’s lower than the 70 million tons forecast by the U.S. Department of Agriculture and compares to the Brazilian government’s estimate of 75 million tons. Private forecasters have been cutting their estimates for the crop because of dry weather, Sholom Sanik, an analyst at Friedberg Mercantile Group Ltd. in Toronto, said in a report e-mailed yesterday.

Growers in Mato Grosso planted 78 percent of the second corn crop, a slower pace than the 94 percent sown at the same time last year and the five-year average of 91 percent, according to Somar. Farmers finished planting on 28 percent of area in Sao Paulo, compared to the five-year average of 44 percent. In Goias, planting was 77 percent complete, down from the five-year average of 86 percent, Somar data showed. Mato Grosso do Sul is the only state where plantings are running ahead of average.

“The planting pace in Mato Grosso has been very slow,” said Chris Gadd, a London-based commodities analyst at Macquarie Group Ltd. “Once you push planting into March you push pollination into May, and then you can have big issues because May is a month when they normally see very little precipitation. Yields could be all over the place.”

Brazil’s corn exports may be about 20 million tons, about 20 percent less than the prior year, the USDA estimates. The country’s shipments will be about half the size of those in the U.S., the largest exporter at 41.3 million tons. The U.S. harvest in 2013-14 was a record 353.7 million tons, USDA data show. Global supplies of corn are ample, and prices probably won’t rally unless weather problems arise during the next U.S. growing season after planting starts in April, Gadd said.

“A 10 million or 5 million ton swing is not going to change the global supply and demand,” he said. “The market might react to it as noise, but at the end of the day there’s going to be far more important factors. It’s a drop in the ocean compared to whether we have good or bad pollination in the U.S.”

- Isis Almeida and Whitney McFerron in London at Bloomberg.