One of the most interesting things that has happened in the corn market during the winter of 2023 is that China has reached an agreement with Brazil to allow Brazilian corn to flow into the Chinese marketplace.
What the two countries sorted out is a phytosanitary agreement, which in the simplest terms is an agreement that Brazilian corn will not contain any pests, diseases, pathogens or weed seeds that could harm Chinese agriculture if their corn were to enter China. It means that this winter is the first time ever that corn from Brazil is being imported into China. This development has caught the attention of grain marketers around the world.
China is the world’s biggest import buyer of corn. Their importance to global corn demand is immense, but what is a little startling is how simple their supply lines have traditionally been. In 2021, China imported 28-million metric tonnes of corn; 70 % of that total originated in the United States and 26 % of their corn imports came from Ukraine, which leaves only 4 % of China’s imported corn stocks to come from anywhere else in the world, other than the United States and Ukraine.
Obviously, Russia’s invasion of Ukraine early in 2022 has disrupted everything in the Ukrainian economy, including their capacity to both grow corn and transport corn over land to terminal positions and load onto export vessels. More than a quarter of China’s imported corn supply had been originating in a country that has, for all intents and purposes, been temporarily shut down. It should not come as a surprise that China decided that its supply chains need to be more diversified, and that having more suppliers spread more broadly around the world will make them less vulnerable going forward. China’s addition of Brazil as a corn supplier is really just a risk mitigation strategy, like the old saying, “Don’t have all of your eggs in one basket.” China is simply doing the rational and sensible step of spreading its supply risk.
Brazil may have enormous long term potential as a global corn supplier but they aren’t there yet. If you look at Brazilian corn production statistics, the crop is typically divided into two subsets: The “1st crop” and “Safrinha” or “2nd crop”. The safrinha is planted at about this time of year, following soybean harvest in September. It’s typically grown only in the northern part of Brazil, where proximity to the equator makes it possible to grow two crops per year. In 2020, Brazil’s average corn yield was 92 bushels/acre for their 1st crop corn and 81 bu/ac for the safrinha. Last year’s average corn yield in Brazil was 5.1 tonnes per hectare which works out to roughly 90 bu/ac, just less than half of the USA’s 181 bu/ac average corn yield. While these corn yields for Brazil seem astonishingly poor, they’ve actually more than doubled over the past 30 years. Back in 1991-1992, Brazil’s average corn yields were 41 bushels per acres for their 1st crop and 29 bushels per acre for the safrinha crop.
Argentina is a little farther from the equator and has a more temperate climate, which is more favourable to corn. Argentina’s average corn yield is typically between 110 and 115 bushels per acre.
The headline that China has begun to accept corn imports from Brazil should be an attention grabber for Ontario grain producers. But I think that it would be overly dramatic to suggest that reaching a phytosanitary agreement with Brazil is a slight to America. It’s rather a necessity when Ukraine’s capacity as a reliable supplier is badly compromised. I am sure that Chinese officials don’t mind having an alternative to buying more U.S. corn, (In fact the ability to spread out their purchases to suppliers other than Americans might even be a bit empowering). But Brazil’s corn acreage is only about 60 % of the U.S. harvested acres, and its yields are only being 50 % of the U.S. average. Brazil’s total corn production is only about one-third of the U.S. output and that simply isn’t a big enough volume to leverage the Americans out of any major market. An end to the conflict in Ukraine and the re-establishment of Ukraine’s agricultural infrastructure has more capacity to lower U.S. and Canadian corn exports than anything that’s currently going on in Brazil.
Five, 10, or 15 years from now, if Brazil’s corn yields continue to rise and perhaps catch up to North American or European levels, its capacity to export corn could become a major influencer on global prices. The significance of Brazil gaining access to the Chinese market this winter won’t be felt on 2022 or 2023 crop prices earned by Ontario corn producers.
In the years ahead we might look back on this event and see it as a turning point for our market.