As shown in Graph 1, Brazil currently uses less than 10% (~8% to be more exact) of its total land for agricultural purposes. Another 22% is used for pasture. In recent years Brazilian producers have become increasingly proficient in the integration of crop production in what once was land solely used for pasture. This technique has proven not only environmentally efficient but also extremely successful from an economic and yield perspective. Those incentives have spurred continued cropland expansion in recent years and are more than enough to continue incentivizing production growth in the South American nation.

Important reminder: a vast majority of the Agricultural Belt in Brazil has two growing seasons within one “crop year”. The now famous “Safrinha” period corresponds to the “winter or second production cycle” for most of the Center-North portion of the country – crops that get planted after the summer harvest. Less than 10 years ago, this production period was not seen as friendly to yield potential - that view, however, has drastically changed in recent years.

Safrinha actually means “small crop” as initially, it was a period mostly dedicated to a very small portion of corn production in Brazil. However, the advancement of agricultural know-how and techniques, as well as major investments in machinery that enables Brazilian producers to harvest and plant in fast and yes - simultaneous fashion - Safrinha corn production now corresponds to almost 80% of total Brazilian corn production!

GRAPH 1

The first natural consequence of the aforementioned factors: increased production. Brazil set a new corn production record last year of 117 MMTs - up from 86 MMTs in drought-stricken 2021 – and is now around 4 weeks away from registering yet another corn production record, this time approaching 130 MMTs!

The second consequence? Record corn exports and, new for 2023 – the lead in world corn exports! That’s correct. I am on the record about one year ago, around May of 2022, repeatedly stating that Brazil was going to become the world’s #1 corn exporter by 2025. I was wrong, as I was too conservative! Brazil will not only take the lead in 2023, but it will also likely increase its dominance in exports for years to come, just as it was the case for soybeans starting around 2012. As we can see in Graph 2, only 2 years ago, in 2021, Brazil exported a meager 20 MMTs to U.S.’s nearly 70!

GRAPH 2

It was literally crazy to think Brazil could surpass the U.S. in corn exports, right?! Not quite. Those that are familiar with the reasons behind the disparity that year, the major drought in Brazil being the main one, knew that the potential was there for an enormous rebound in both production & exports, Mother Nature allowing. Additionally, a simple look at the price competitiveness between Brazilian and American corn told us that Brazilian corn exports were about to take a considerable slice of U.S.’s world share in the years to come. That is exactly what has happened, and what is likely to continue happening despite strong competition for corn exports from Argentina and the Black Sea region, as well of course as the United States.

Finally, we at MD Commodities forecast that Brazilian production and exports could reach as high as 150+ & 55+ MMTs in the next 2-3 years.(Graph 3)


GRAPH 3

Brazil has solidified its dominance in the soybean market in recent years. It now is responsible for over 55% of total world soybean exports and weather permitting it could reach nearly 60% of the world export share of the oilseed by 2025. In contrast & consequently, we can see the U.S.’s share steadily decreasing in recent years, especially since 2017/18 (Graph 4). The U.S. was the dominant force in the soybean market in the early 2000’s – holding at one time a 58% to 24% advantage over Brazil in world soybean export share.

The chart has literally and completely flipped: Brazil is now poised to more than double the U.S.’s share of world exports in the next year or two. What an incredible turn of events!

How can it be that a country with such “poor logistics” can be the largest exporter in the world in multiple commodities? Could it be that although far from ideal – Brazil’s logistics are at least for now “sufficient” to get the job done? If so, how much improvement can we expect with the recent focus of market participants, both domestic and international, in investment to vastly improve the country’s logistics?


GRAPH 4

Despite some clear challenges, not all is lost when it comes to Brazil’s logistics. Take for instance the region known as the “Northern Arc. It consists of six main “new ports” in northern Brazil, that as recently as 10 years ago had very little impact on total Brazil exports. Investment in the region has been “off the charts” in these past ten years – and the results show:

Ports in the Northern Arc now handle just shy of 40% of Brazil’s total soybean exports and nearly 50% of corn exports. That is up from just 13% for soybeans and only 9% for corn just ten years ago! (Graph 5) Absolutely incredible!


GRAPH 5

The constant narrative that “ports to the south cannot handle the increase in production and hence, increase in exports” is old, outdated and simply misleading. Yes, truck waiting lines and delays exist. Yes, improvements must be made in Brazil’s over-reliance on truck freight as opposed to rail and water for internal transportation. Yes, roads must be improved – all of that is true.

However, Brazilians historically have a way of getting things done despite unfavorable conditions. Imagine what can happen when conditions are indeed favorable?

Pelé, arguably one of the, if not the greatest footballer of all time, learned to play football with balls made of rolled-up socks and mangoes. In other words, conditions were far from ideal and yet, Pelé is known as the King for a reason.

Brazil has indeed a history of making things happen despite its own flaws or shortcomings – and that is where things get even more interesting. If Brazil already is the King of Exports for soybeans, corn, and multiple other commodities even in the face of its current logistical shortcomings – what happens when the improvement projects already under way come to fruition? What happens when Brazil is no longer hampered by its own inefficiencies? Current conditions are already considerably better than they were 10, even 5 years ago. Given the enormous economic share of the agricultural sector in the country – responsible for nearly 1/3rd of GDP – investments shall continue and consequently so shall Brazil’s agricultural commodity export dominance for years to come.

Cotton is already on a similar path that corn was in about 5 years ago – Brazil could also very soon become the largest exporter of fiber in the world. Could wheat be the next major growth story for Brazil in the next 10 years?

Time, weather and economics will tell – but the country will no doubt be ready to take on yet another challenge if called upon…