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How Iranian tensions could harm U.S. corn exports

Heightened tensions between the U.S. and Iran could put more Brazilian corn into traditionally American dominated markets.

Ongoing U.S. sanctions against the Middle Eastern country of Iran have not included food products, and so through most of 2019, Iran has become Brazilian corn’s second-largest destination after Japan. Check out last week’s blog for more about Brazil’s corn exports.

“(Rising U.S.-Iran tensions are) going to make our lives difficult,” the head of Brazil’s grain export association told a Brazilian reporter, as Brazil’s ever-growing second-crop corn serves as a single-year rotation for the soybean crop and flows through the same export channels right after the beans, naturally extending Brazil’s long ag export season.

A tale of two ships

But that trade has not come easily due to current U.S. sanctions on companies that do business with Iran. It’s true that the current array of sanctions doesn’t cover food nor feed, but the exchanging of Iranian money-- say 42,000 nearly worthless Iranian Rials for a U.S. dollar that will be accepted by the seller-- is very much covered by U.S. sanctions.

As a result, even sanctions-free Iranian purchases of Brazilian corn normally have to be handled by international banks quite unenthused about risking millions of dollars in penalties from the U.S. just for having financed a measly shipload of Iran-bound corn. 

Your humble correspondent wrote about one such case back in July when two Iranian ships sat at anchor for a couple of months awaiting refueling. Check out that blog entry for details and a real-life example of just how such sanctions have worked.

Before Suleimani

And that was how tough it was before a U.S. drone killed Iranian General Qasem Suleimani at the Baghdad Airport, setting off threats of retaliation, a warning for U.S. citizens to leave Iraq, and the dialing up of additional military service members to the Green Zone.

Before General Suleimani’s death, Brazil’s annual exports to Iran came to $2.2 billion, according to that country’s Economy Ministry, which indicated 44% of that total came from corn exports. Another 26% of that total was soy exports, all achieved working around the U.S. sanctions on anyone who handles Iranian currency.

If sanctions get yet tougher with a war, Brazil’s corn may have to go somewhere else – but where?

With so much livestock in the country, it could go toward feeding Brazil’s own large populations of broilers, layers and hogs. But that would drive local prices down further (they already dropped about a percent between the Suleimani incident and this writing.) 

Crude oil prices, meanwhile, spike on the slightest whisper of international tension. And if crude goes high enough, all those Brazilian motorists with flex-fuel cars will be likely to crank up their ethanol-gasoline blends at the pump, meaning some of that second-crop corn could go into fuel tanks.

Otherwise you can bet the Brazilians will be looking to unload some of the stuff in markets you currently dominate.

 

TAGS: Exports Crops
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