“China will use Brazil as a competitive point in relation to US corn. Until 2022, China was practically buying corn only from Ukraine and the US.”
Paulo Molinari is the director of the agricultural consultancy Safras & Mercado and a senior consultant specializing in the corn and meat segments.
Molinari is an economist from the Federal University of Paraná and has a postgraduate degree in agribusiness from FAE.
Paulo Molinari, director of the agricultural consultancy Safras & Mercado
AgriBrasilis – What is the reason for the increase in corn consumption for ethanol production and livestock in Brazil? What are the consequences for the market?
Paulo Molinari – Brazil has a gigantic corn production capacity and needs to offer flow conditions for a production that is always growing.
This growing production has always created difficulties in transporting the product to more bordering regions, such as the Midwest and the States of Matopiba (Maranhão, Tocantins, Piauí and Bahia). Corn has always been very cheap in these regions, but difficult to sell.
On the other hand, these are regions of strong extensive livestock production. With the arrival of larger slaughterhouses, the expansion of feedlots became feasible. The region’s cheap corn combined perfectly with this expansion of feedlot livestock.
With cheap corn and expensive fuel options for these regions, the corn – ethanol industry took hold, proving to be a more economically viable alternative than the sugarcane ethanol industry. This happens because of the structure that is necessary to farm sugarcane.
Cheap corn and expensive ethanol are the perfect combination for the industry to set up shop. The DDG (distillation-dried corn grain) finds an outlet in livestock and the production cycle is completed.
Brazilian corn production will always show surpluses because the production expansion capacity is much greater than the speed of increase in demand.
Something between 40 and 50 million tonnes of exportable corn surplus will always be present.
AgriBrasilis – Why are farmers waiting to sell soybeans? Is there enough infrastructure to store the off-season production?
Paulo Molinari – Unfortunately, the Brazilian farmer was not very proactive in selling soybeans in the 2023 harvest. Now, the farmer wants to withhold part of the harvest to wait for new events.
The problem for this scenario is the arrival of the off-season production from July/August, that will have difficulties finding space for storage because of the presence of a lot of soybeans still in storage.
There is no room for a record harvest of soybean and a record off-season harvest at the same year.
AgriBrasilis – What are the alternatives for the problems of logistics infrastructure and storage?
Paulo Molinari – For the current year, there is no solution, apart from silo-bags.
It is necessary for the farmer to be more proactive in selling the 2023 off-season production, anticipating export sales to avoid space problems at harvest time.
AgriBrasilis – Will China continue with the current pace of Brazilian corn purchases in the second half? Why?
Paulo Molinari – China will use Brazil as a competitive point in relation to US corn. Until 2022, China practically bought corn only from Ukraine and the US.
Now, with a better sanitary agreement between China and Brazil, the doors are wide open for China. Also, Brazilian corn is well accepted throughout the global market.
China will indeed participate in the Brazilian market, acquiring something between 2 and 5 million tonnes of corn in 2023.
However, we must remember that when China buys Brazilian corn, it reduces demand for US corn, and this drops prices on the Chicago Board of Trade – CBOT. This is important because prices in Brazil are set by the CBOT.
AgriBrasilis – Did Chinese corn purchases from Brazil change the dynamics of the market?
Paulo Molinari – No. The normal export dynamics still applies, as is the case for any destination. There is no change in insurance premium or prices, nothing like that. The math here is the same for any buyer.
What really changes market dynamics are production losses, such as those that occurred in Europe in 2022.
What happens is that China opened another corn supplier and will participate in the proportion it needs.
It is also important to remember that China has been having record harvests each year and its supply profile is changing.
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