Brazilian chicken farmers increasingly relying on corn imports

The US Department of Agriculture (USDA) released details regarding production, use and trade of feed ingredients and grain in Brazil in a Foreign Agricultural Service's attaché’s report​.​

Overall, corn production for the current marketing year is expected to be about 18% higher than what was produced last year, based on planted area and growing conditions, said the attaché. Corn and wheat production are forecast to increase in the upcoming marketing year (MY) 2019/20.

However, the shift to growing more corn during the second planting, or in the safrinha crop, is creating a challenge for feed users, including poultry and swine producers, she said. ​

“Safrinha corn, grown far from most poultry and swine operations, makes up a bulk of Brazil’s exports each year."​

Additionally, both corn exports and imports are forecast to increase during the 2018/19 marketing year, she said.

“The shrinking of Brazil’s first-crop corn area, compounded this year by the dry weather conditions, has resulted in unmet domestic demand by the livestock and poultry sector in southern Brazil,” ​she said. “While Brazil, on the whole, produces much more corn than the country consumes domestically, the main producing areas have shifted in recent decades, with more corn grown in central Brazil and less in the south where the poultry and pork industries have traditionally been concentrated.”​

Challenges from shifting corn production ​

Corn production in 2018/19 is expected to reach about 95m metric tons as the crop did not face the dry conditions seen in 2017/18, the attaché said. “The increase is also due to expanded area for safrinha corn, with total MY 2018/2019 corn area forecast at 17.5m hectares, 5% greater than MY 2017/18."​

In 2017/18 about 66% of total corn production in Brazil came from safrinha, or ‘little harvest’ corn, she said. In 2019/20 the forecast is for the second crop corn to account for about 72% of corn production.

“This has become a problem for poultry and swine producers, who traditionally have relied on first-crop corn grown in southern Brazil as a large part of feed rations,” ​she said. “Poor infrastructure connections and the high price of transporting safrinha corn from the center-west have meant that livestock and poultry operators in southern Brazil are increasingly turning to corn imports for feed rations, which is ironic in a country that produces such great volumes of the grain.”​

Corn imports in 2018/19 are expected to 1m metric tons – a 9% increase from the previous marketing year, she said.

Corn prices increased at the end of 2018 and into early 2019 as the harvest of first-crop corn was smaller than anticipated, and by February, prices in Mato Grosso and Parana were 30% higher year-over-year, the attaché said.

“This has squeezed poultry and livestock producers who depend on first-crop corn for feed rations,” ​she added.

Some of Brazil’s largest poultry and swine producers are located in Santa Catarina, she said. However, the region generates about half the corn needed for feed use.

“The poultry and livestock sector frequently imports corn from nearby Paraguay, as it is much less expensive to move corn overland from Paraguay than it is to transport corn domestically from high-production areas in central Brazil,”​ she said. “To facilitate imports, the government of Santa Catarina has been working with authorities in Argentina and Paraguay to plan for the construction of a ‘corn route’ that would make it cheaper to procure Paraguayan corn by moving it across the sliver of Argentina that separates the two, rather than importing it via the direct Brazil-Paraguay land border in neighboring Parana state.”​

Corn use and feed​

In MY 2018/19 total corn use is expected to be 67.5m metric tons, the attaché said. The total is an increase of 5% from the use the previous year, and consumption is expected to grow 3% in MY 2019/20.

“Brazil’s large poultry sector generally consumes a great portion of the corn crop each year,” ​she said. “Increased feed consumption is expected in the poultry and pork sectors.”​

Poultry production is anticipated to increase by 1.8%, while pork grows by 3.5%, she said. Egg production also has been rapidly expanding and the estimation is that laying hen feed demand rose by 10% in 2018.

However, corn-based ethanol production also has been increasing providing competition for the feed grain, she said. Industry estimates suggest that ethanol production is using 10-15% of the corn supplies in some parts of the country.

“As a result, more poultry and livestock operations are ramping up their use of dried distillers’ grains with solubles (DDGS), a protein-rich co-product of corn ethanol production,” ​the attaché said. “DDGS are reportedly competitive with soymeal as a feed ingredient, providing another option for the livestock and poultry sector and making corn ethanol even more profitable overall.”​

Feed crop outlook​

An early harvest for soybeans and high prices for corn motivated farmers to increase the pace of planting for safrinha crop corn, the attaché said. The early planting is anticipated to support crop development and is a contrast to the planting of the 2017/18 crop.

“For the MY 2018/2019 season, farmers are expected to invest more to try to maximize yields, take advantage of the currently high domestic corn prices, and claw back some losses from a disappointing soy season,”​ she added.

Production in the upcoming marketing year also is predicted to increase with about 18m hectares of corn harvested and total production forecast to reach 97.5m metric tons, she said. However, first-crop corn is predicted to see a continual shrinking in area planted while the area planted for the safrinha crop expands.

“As soybean area in Brazil has climbed, first-crop corn plantings, concentrated mainly in southern Brazil, have been sacrificed to area for high-priced soybeans,”​ she said. “At the same time, expanded soy area in Brazil’s center-west region, with climate conditions to support production of two crops in the same year, has led to the rapid growth in safrinha corn area.”​

Corn exports​

In marketing year 2018/19 corn exports are predicted to be 30m metric tons – a 20% increase from 2017/18, the attaché said. Exports in 2019/20 are forecast to be 32m metric tons stemming from the anticipation of increased production.

“The large expected crop will likely push prices lower after the harvest begins in June, making Brazilian corn even more competitive on the international market,” she said. “However, infrastructure challenges and new taxes may constrain the corn export potential this season.”​

Corn grown as a safrinha crop typically is exported, however, the feed crop facies logistical challenges and higher freight costs, she said.

“Close of half of safrinha corn in MY 2017/2018 was produced in the state of Mato Grosso, which lies at the geographic center of the continent of South America, making transport to oceangoing vessels very difficult,” ​the attaché said. “Corn produced in Mato Grosso must be transported great distances by truck before it can be loaded onto railways, barges, or cargo ships.”​

Producers also are seeing costs increase, due in part to a new export tax, she said. Previously, the tax had not applied to corn.

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