Ideas revive for corn area in Brazil, but not US

Will world corn stocks build further, after being replenished by last year's record US crop?

Prospects for the next two rounds of the world's top two harvests have diverged.

Downbeat ideas for Brazil's safrinha crop look increasingly premature, given a revival in domestic prices, thanks to a weak real and the downgrade to the US crop last week.

But incentives for US growers to plant this year may be going into retreat, with the Federal Reserve cautioning that farmers face losses on the grain.

Price signals

In Brazil, a revival in prices - up 2.9% nationwide over the past month in US dollar terms, according to research group Cepea - has pushed values just above production costs in some key growing areas.

In the major safrinha corn state of Mato Grosso prices have risen by 8.8% to R$15.25 a sack, equivalent to about $3.00 a bushel, creating scope for some slim profits for some growers.

"If these prices are sustained over the next few weeks, some farmers in the state may revise their previous decision to reduce their 2013-14 safrinha corn acreage," Michael Cordonnier, the respected crop scout, said.

Agroconsult believes that growers have already changed their minds and decided on widespread safrinha sowings forecasting a 2% rise to 9.2m hectares in plantings.

The consultancy cited talk of a pick-up in demand for corn seed by Brazil's farmers, who have a habit of sowing even if presented only with slim margins.

'Higher-than-expected area'

Imea, the Mato Grosso institute of agricultural economics, had forecast a drop of some 500,000 hectares to 3.2m hectares, in safrinha corn acres in the state, with output expected to drop by 24% to 17.0m tonnes.

US Department of Agriculture staff in Brasilia have forecast some switch from corn to cotton and wheat, with other observers seeing soybean crops following on from soybean crops. 

However, the idea of raised Brazilian sowings has reached US grain markets.

"Stronger-than-expected mid-January corn prices may spawn a higher-than-expected Brazilian safrinha corn area," Richard Feltes at Chicago-based broker RJ O'Brien said.

Fed comments

Idesa for US corn sowings this spring had improved too after Friday's 5% jump in corn prices, which rendered the grain a better bet than soybeans, its main rival in spring planting programmes.

The ratio between Chicago's November 2014 soybean contract and December 2014 corn lot, viewed as a key indicator of the appeal of both crops to farmers, had fallen from approaching 2.6: 1 last month to 2.40: 1, indicating the revived appeal of the grain against the oilseed.

However, the ratio had recovered to 2.48:1 as of Thursday, putting soybeans firmly back in the ascendancy a trend picked up by the US Federal Reserve in its so-called "beige book" of economic observations, the latest edition revealed on Wednesday.

"Current prices for corn will not cover expected costs for 2014 production, whereas soybean prices would," the Fed's Chicago bank, which covers key areas of the Midwest, said.

"This may lead to increased soybean planting in the spring."

Much-watched crops

The prospects for sowings of these two crops are viewed as particularly sensitive to prices, with the safrinha crop the main source for Brazilian exports, and the US the top grower and shipper of the grain.

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