São Paulo – Maize growers have no reason to complain. The commodity has the best price in the last few years and should not depreciate any time soon, so producers’ dividends are guaranteed. International demand is heated – especially because the United States’ inventories are running low – and domestic consumption should grow in 2011. Growers should have a good year, provided that the failure of the winter crop (aka safrinha, i.e. little crop) does not get in the way.
According to data from the Ministry of Agriculture, maize exports grew by 32.1% in the first quarter this year. The country exported 23.3% more to Arab League countries in the first three months this year than in the same period of 2010. This increase in exports should not hold true until the end of the year, according to Leonardo Menezes, an agricultural market analyst at consultancy firm Céleres Consultoria.
He claims that domestic market demand is strong right now due to greater consumption for animal feed, and that should restrict the supply for export. The grain is the staple for feeding bird and swine. In 2010, 36.9 million tonnes were destined to animals. This year, it should reach 38 million tonnes. This is one of the reasons for which the market projects that by year’s end, Brazil will have exported 8 million tonnes of maize, as against 10.7 million in 2010.
Aside from the heightened domestic demand, United States consumption contributes to the price hike. "The United States is allocating a significant share of the maize to ethanol production, rather than for food alone. They have their lowest inventory in the last 15 years," says Menezes. The United States has enough for 18 days’ consumption. "The ideal scenario would be an inventory that would last two and a half to three years," he says.
By the first half of last year, maize was selling for US$ 3 per bushel at the Chicago Stock Exchange. This year, one bushel of maize has risen to almost US$ 8. In Brazil, the hike in the price of the commodity has reached 156% in the municipality of Lucas do Rio Verde, in the state of Mato Grosso. In March last year, one bag of maize produced in the municipality was sold for an average of 7.29 Brazilian real in February. In the second month of the year, one bag produced in Lucas do Rio Verde was sold for 18.66 real on average.
In the state of Mato Grosso, the price reached 18.66 real. In Rio Grande do Sul (which accounts for roughly 13.5% of domestic production, estimated in 13 million hectares), the 60 kilogram bag is sold for prifes ranging from 24 to 28 reals. Last year, one bag was selling for an average of 14 reals. The low cost of maize in 2010 and the crop failure threat due to weather phenomenon La Niña have driven growers in Rio Grande do Sul to switch from maize to soy. Growers withdrew from planting a total of 200,000 hectares with maize in 2010. The planted area in the state dropped to 900,000 hectares. La Niña did not cause the crop to fail, so the production remained stable.
Without the threat of unstable weather and considering the high prices, farmers in the region will go back to planting maize in August. That, however, should not cause prices to drop in the region. According to the chairman of the Rio Grande do Sul Maize Growers Association (Apromilho), Claudio Luiz de Jesus, the demand should remain strong in the state, which consumes most of what it produces, and drive up the farmers’ earnings. "[Brazilian president] Dilma has just returned from China with meat export agreements. A packing plant in our region (Ijuí) is going to sell meat to them, and thus, the demand for maize will rise," he forecasts.
Both Menezes and Claudio believe maize prices are high and have not reached a "point of equilibrium." This "standard" may vary, according to Menezes, depending on international demand, the behaviour of other commodities, and meat exports. To Claudio, the average price of maize in Rio Grande do Sul is 22 reals per bag. He, however, does not believe that the actual price should drop if meat exports remain strong.
*Translated by Gabriel Pomerancblum
