Brazil's government announced it will waive import tax on one million metric tons of corn from outside the Mercosur trade bloc due to scarcity ahead of the second-crop harvest.
The 8% tax break is valid for the next six months, said the Foreign Trade Council (Camex).
Brazil has been super aggressive on the corn export market over the last year, facilitated by a devaluation of the Brazilian real. That has caused domestic prices to soar in recent weeks as it has become clear that the market is undersupplied and meatpackers such as BRF and JBS are operating with negative margins.
Brazil is expected to import between 500,000 and 700,000 metric tons of corn in May and June. But most of that will come from Argentina and Paraguay, which as fellow members of the Mercosur trade bloc were already exempt from the import tax. The first of the shipments is due to arrive from Argentina this week.
The tax waiver may open up some opportunities for U.S. corn in the northeast and will put a lower cap on import prices.
Brazil's Agriculture Minister Katia Abrea had been pushing for a further-reaching tax cut which could have reduced prices by something like 10%. However, the Finance Ministry vetoed the proposal as it needs all the revenues it can get amid a record recession.
Brazil exported in excess of 30 million metric tons in 2015-16 (Feb-Jan) and is pegged to sell a similar amount in 2016-17. However, dry weather during April may hamper those plans.
A lack of rain across the principle second-crop regions of Mato Grosso, the rest of the center-west and Parana is hurting corn just when it is going through key reproducing phases. As such, analysts think forecasts for the crop of 56-58 mmt may be ambitious.
Significant losses from the second crop would mean a tight domestic market at the end of the year since 60% to 65% of the projected Brazil crop has already been sold for export.
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