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Brazilian Corn Prices to Surge as Ethanol Demand Fuels Domestic Consumption

Ethanol production is poised to drive up Brazilian corn prices, incentivizing domestic consumption and potentially limiting exports in the upcoming marketing year, according to an industry expert interviewed by S&P Global Commodity Insights last week.

Arthur Neto, partner director at Alphamar Shipping Agency, predicts that corn usage for ethanol will rise significantly to 17 million metric tons (MT) in the 2024-25 marketing year, up from 13.26 million MT in 2023. This increased demand, driven by the growth of the ethanol industry, is expected to tighten domestic supplies and push corn prices higher.

"This is going to be a dynamic that's going to make the price on the domestic market go higher, which makes the producers maintain the corn inside, meaning that if you have export demand, you need to pay much more," Neto told S&P Global Commodity Insights.

Neto acknowledged that while strong international demand for Brazilian corn exists, the current market dynamic makes it more advantageous for farmers to sell domestically.

"You have to understand that the market is very heated internally, so it doesn't make sense for the farmer to just sell it at pennies for the international market," Neto explained.

Flooding Impacts Soybean Production, But Less Likely to Significantly Affect Rice

Neto also commented on the recent flooding in Rio Grande do Sul, a key agricultural province for both rice and soybeans. While he expects minimal impact on rice production, due to most of the harvest being completed prior to the floods, soybean production could see significant losses.

"Roughly 85% of the rice was already harvested when we had the floods," Neto said to S&P Global. "Now we just have logistics issues. Some delays are expected, but not much."

However, he stressed the strategic importance of Rio Grande do Sul for soybean production, as the region is located near major ports, and the floods could disrupt the supply chain.

"Soybeans were the core produce in the region, shipped to the port close to it," Neto said. "That system itself is going to lose a lot of volume."

Low Water Levels Pose Shipping Challenges

Neto further highlighted the challenges posed by low water levels in Brazil's northern ports, which saw record lows last year due to a severe Amazon drought. He compared the situation to the low water levels experienced on the Mississippi River in the US during the previous year.

"When we talk about the northern ports, we're not talking about any problems with the capability on the ports," Neto stated. "The problem is the cargo being transferred."

The low water levels could lead to shipping delays and disruptions, impacting the overall efficiency of the logistics chain.

"Sometimes a trip that is to be done in two days can take around five, so of course, with the total turnaround of the barges, it's very bad," Neto added, suggesting that major shipping challenges could persist for up to two months.