Brazil Struggles to Meet Domestic Demand for Corn
The production of agricultural commodities is a large worldwide business. Grains such as corn, soybeans, and wheat are all cultivated in multiple countries and consumed in a variety of ways. Furthermore, a variety of regions and industries depend on large-scale agricultural production. For example, large amounts of corn are used as animal feed in the United States and Brazil. Similarly, corn and sugarcane are used in the production of ethanol biofuel in both North and South America. This article explores the up and downs of the agricultural commodities’ markets worldwide, paying particular attention to the ongoing corn shortage in Brazil.
Agricultural Commodity Markets
Because of their large-scale production, grain commodities tend to produce surpluses, which are stored in silos for later use. Whenever crop yields fall below the expected levels, excess production from previous harvests provides the market with greater flexibility in the form of reserves. A downside to this is that farmers could find themselves producing at a loss if the harvests are too abundant and the market prices too low. However, whenever climatological or other factors have an adverse effect on crop yields, the price of commodities in stock reserve goes up substantially.
This year has been particularly harsh for Brazilian corn farmers in terms of crops yields. Unlike the soybean producers, who have enjoyed record yields over the last few years, the domestic corn supply in Brazil is dangerously low. Brazil has already imported over 500.000 metric tons of corn this year from fellow Mercosur members, Argentina and Paraguay. However, the supply shortage that prevails in the country is driving corn prices up and putting great amounts of stress on dependent industries. For example, local meat industries, such as pork and poultry, are seeing their production costs go up and their sales go down. Not only are sectors of the domestic market unable to purchase pork and poultry products, but Brazilian exports of these goods have also taken a hit.
Commodities in Brazil: The Dilemma
In order to deal with the corn shortage and help stabilize the market price, the Brazilian Ministry of Agriculture, Livestock, and Food Supply is seeking approval to import genetically modified (GM) corn from the United States. After the summer drought affected Brazilian corn yields, the government authorities approved a series of extraordinary measures to boost corn imports from other South American nations. For example, import quotas and tariffs were lifted on agricultural commodities from fellow Mercosur nations. Nevertheless, the South American corn supply does not seem to be enough to meet Brazil’s aggregate demand.
The request by Brazil’s Ministry of Agriculture to the National Biosafety Technical Commission to approve the import of GM corn represents a very dire policy measure. For decades, Brazil has fiercely opposed the import of GM goods and, even now, it is not certain that the authorization will be finalized. Brazilian importation of US corn would open the door to GM agricultural commodities entering Brazil and even the Mercosur region. Therefore, the implications of such a decision would not only have economic and social, but also political repercussions. In this regard, the United States and Brazil have great trading potential during seasons of low harvest. However, if they were to engage in consistent trade, there is a risk of market saturation and very low prices during seasons of high yields in both regions.
Whether or not the Brazilian government decides to open the door to temporary or permanent trade in agricultural commodities with the United State remains to be determined. Nevertheless, the issue of climate risk and low yields, is one that will prevail in both regions. Government officials and agricultural workers in both countries would be wise to explore the possibility of collaborating during future market shocks.