Brazil to Overtake U.S. as Largest Corn Exporter

tendata blogTrade Trends News

ten data blog25-08-2023

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Brazil is set to overtake the United States as the world's biggest corn exporter this year, reflecting both a bumper harvest and logistical breakthroughs such as the consolidation of northern export routes, which has boosted southern competitiveness U.S. grain powerhouse.

Corn exports through Brazil's northern ports, which use the waterways of the Amazon River Basin to move grain around the world, are on track to surpass those from the most traditional port of Santos for the third year in a row, according to a Reuters analysis of grain shipment data.

The shift underscores the fact that Brazil, which produces three corn crops a year but still has vast tracts of underutilized farmland, is finally overcoming some of the infrastructural bottlenecks that have long made it difficult for its bumper corn crop to reach global markets.

That move, along with a new supply deal with China announced last year, suggests that Brazil could usher in a longer era of corn export supremacy to the U.S., not unlike when it briefly took the global corn crown during the drought-stricken 2012/13 season in North America.

Increased export capacity has helped Brazil fill a gap in the global corn market due to the war in major grain exporter Ukraine and disruptions caused by trade tensions between the U.S. and China.

"We celebrated a lot when the volume (of corn exports) through the northern ports was equal to Santos," said Sergio Mendes, head of Brazilian grain exporter group Anec. "By using the northern port ...... you save R$20 ($4.12) per ton (of corn)."

Major new investments in Brazil have begun to ease several bottlenecks and dramatically reduce logistics costs, helping to erode U.S. farmers' incomes.

The northern export routes have particularly benefited from a law enacted in 2013 that encouraged grain traders such as Cargill and Bunge (BG.N) and barge operator Hidrovias do Brasil (HBSA3.SA) to build new private port terminals (TUPs).

Their transshipment terminals on the Tapajós and Madeira rivers connect the heart of Brazilian farms with emerging Amazonian ports such as Itacotiara, São Talão and Bacarena.

Built and operated by foreign and Brazilian grain merchants such as Louis Dreyfus Commodities and Amaggi, the Tegram Grain Terminal in Itaqui has seen its grain exports grow by 306 percent in eight years to more than 13 million tons by 2022, according to data provided by the company. 

Unlike traditional time-limited concessions, the TUP legal framework has created a wave of long-term port investment in Brazil. According to a 2020 study by Brazil's TCU Federal Court of Audit, some R$39 billion (US$8 billion) has been invested in the construction and expansion of 112 new private-use terminals under the new law.

However, Brazilian agriculture is not free from all logistical woes. Farm storage capacity is still dwarfed by food powerhouses such as Canada, the United States, and Argentina.

As of 2021, annual corn production in Mato Grosso, the No. 1 grain state, has tripled in a decade to more than 90 million tons, and the storage gap has soared to 46 million tons faster than new silos can be built, according to Mato Grosso state government data.

The lack of storage space means that Brazilian farmers are forced to sell their harvests quickly or pile their corn outside their warehouses and hope the weather improves. As a result, much of Brazil's harvest floods onto roads during a narrow seasonal window, which can cause expensive traffic jams.

Cheaper routes to China

New export capacity has helped grain shipped from northern Brazilian ports compete with U.S. farmers on logistics costs.

According to the USDA and Brazil's ESALQ-LOG, shipping a ton of soybeans from Iowa to Shanghai in 2008 was 77 percent of the price of using northern Brazilian ports, but by March 2023 it will cost 5 percent more to ship a ton of soybeans from the U.S. For corn, the freight costs are very similar, says Thiago Pera, logistics research coordinator at ESALQ-LOG. For corn, the freight costs are very similar.

The Amazon Basin also competes with the southeastern port of Santos, which has long been a heavyweight for Brazilian grain exports. About 37% of Brazil's total corn exports in the first half of 2023 flowed through the ports of Bacarena, Itaqui, Itacotiala and Santarém, according to Brazilian crop agency Conab. Only 24% flowed through Santos.

By comparison, Santos exported almost three times as much corn as these four northern ports in 2015, after which significant investments expanded port capacity in the Amazon.

Conab official Thome Guth said, "The higher proportion of shipments going through the northern ports reflects the cheaper cost of freight compared to southern and southeastern ports."

Conab forecasts that Brazil's total corn production in 2023 will be close to 130 million tons, the highest level on record, with exports reaching 50 million tons for the first time.

Chicago corn futures have fallen from a 10-year high in April 2022 to a two-and-a-half-year low this month, in part because of ample Brazilian supplies.

Brazil's growing export infrastructure shows few signs of slowing, although lower prices may deter farmers from rapidly expanding acreage.

Chinese state trader COFCO is currently building a major new grain terminal in Santos after securing a 25-year operating license for 14 million tons of capacity. COFCO's STS11 terminal is scheduled to begin shipping in 2026.

The highway license granted two years ago also modernizes an important Amazonian grain corridor that stretches more than 1,000 kilometers (625 miles) from Mato Grosso to the port in Pará, known as BR-163.

For years, grain trucks often got stuck in deep mud when they encountered heavy rains on their way to northern ports.

Large-scale rail projects still face a series of bureaucratic hurdles, but some of them have been completed.

Rumo (RAIL3.SA), Brazil's largest railroad company, has just completed a R$4 billion investment in Ferrovia Norte Sul, which starts in 2019. The line connects the port of Santos with the agricultural states of Tocantins, Goiás, Minas Gerais and Mato Grosso, reinforcing another important route to bring the Brazilian harvest to global markets.

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