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Drought Hits Brazil Corn Crop
USAgNet - 05/13/2021

Dry weather and poorly timed planting are weighing on Brazil's second corn crop this year, reviving fears of another surge in feed prices like the one that battered big meatpackers after a 2016 drought.

According to Reuters, soaring prices convinced Brazilian farmers to plant their second corn crop outside the ideal climate window this year. But the crop was hit by the country's worst drought in five years, reducing yields.

Given surging demand in global grains markets, a corn shortage could squeeze profit margins in Brazil for some of the world's biggest protein producers, including JBS SA and BRF SA.

JBS and BRF, which report earnings later on Wednesday, declined to comment on margin pressure from rising feed costs.

JBS's net income plunged 92% in 2016, in part due to surging Brazilian feed costs, and BRF's annual results swung to a loss.

Corn represents 40% of the total cost of production for pork and chickens, says Jorge Lima, an executive with Sindicarne/ACAV, a meat lobby in Santa Catarina state.

He said there is cause for concern about domestic corn prices, which more than doubled in the past year, to a record 100 reais per 60-kilo bag. Prices for other feed ingredients such as soymeal have also been rising.

To mitigate the problem, meat companies lobbied Brazil's government to cut grain import tariffs from sellers outside the South American Mercosur trade bloc and eliminate other taxes weighing on the industry.

Ricardo Santin, president of national meat lobby ABPA, said companies are better prepared now than in 2016, when the corn rally left the sector reeling.


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