How to Buy Yellow Corn in Brazil
Its no secret that Brazil is one of the largest exporters of Yellow Corn to countries around the world. In 2019, with the ongoing Trade War between the United States and China, Brazil experienced an unprecedented surge in Yellow Corn Exports especially from Chinese Buyers forced to cancel contracts with US Corn Suppliers and Iranian Importers buying in Brazil due to the US Sanctions on Iran.
In the accumulated of 2019, Brazil has already exported a total 27.46 million tons, a volume that surpasses by far the total exported in the whole of last year. There have even been reports that Brazil is needing to import Yellow Corn due to the increase in exportation of Brazil Origin Corn to meet the domestic demands.
With the surge in Yellow Corn Exports in Brazil, it is very important for Importers, Agents and 3rd party Brokers to understand the process of buying Yellow Corn in Brazil. With so many buyers and sellers on the market, understanding how Bulk Yellow Corn trade works in Brazil is important to avoiding risks and losing your money to unscrupulous exporters.
Today, we will list requirements and processes normally expected when buying Yellow Corn in Brazil.
Most Brazilian Producers or Farms do not directly Export Yellow Corn
The life of the Yellow Corn begins at a Farm and producer that meticulously guards and grows his crops. Just like every other country, Farmers in Brazil are very busy in planting, growing and harvesting their crops. Majority of Brazilian Farmers, are not concerned in selling directly to Importers. This is because there are systems setup in Brazil that allow a Farmer to sell his crops to Middle men companies like Grain Conglomerate, Cargill, Cooperativas in their areas and to trading companies. In addition, its close to impossible for a foreigner to find or be able to contact the Farm Owners directly. For Importers seeking to buy cheaply directly from the Producer or Farmer, its far from a simple task as you think.
If you want to Import from Brazil, you cant avoid the Trading Company
In Brazil, the trading company is the lifeline of the export industry. Although this important piece of international trade is being bypassed and Buyers can now find, negotiate and conduct business directly with Manufacturers, Brazil still has a long way to go.
If you want to officially export a product from Brazil to another country, You need a Trading Company. A Trading Company in Brazil is an entity that is licensed and registered with the Brazilian Government to perform Import and Export Functions. It is not an easy permit to receive due to the long lines and waiting period after the economical instability since 2014.
Basically, a Trading Company represents the Producer or the Actual Owner of the Corn. The Trading company will sign the contract, arrange all ground transportation of the Yellow Corn to the Port of Santos, Loading, Certificates and Export Clearance. Payment Instruments such as the SBLC, LC or MT103 will be issued to the Exporter. The Trading Company processes the payment and issues payment in Brazilian Reais to the Producer that contracted its services.
Trading Companies link International Buyers to Producers and Corn Owners in Brazil.
Brazilian Corn Price and US Corn Price (FOB) are not the same thing.
Although this seems obvious, you cannot imagine how many Importers contact Brazilian Yellow Corn exporters and provide a Price target using Yellow Corn based on the NY Stock Market or London Exchange Commodity Rate.
Brazil Yellow Corn commodity price is based on the BOVESPA Commodity Market Rate. The BOVESPA Is like the NY Stock Exchange of Brazil. Just like all commodities, the price of the Yellow Corn fluctuates on a daily basis based on many different market and economical factors in Brazil. Secondly, the price of Yellow Corn in the United States is based on FOB to Gulf Coast Ports in the US. Cost of Transportation of Bulk Agro Commodities in the United States is a lot more cheaper than in Brazil due to the infrastructure in the United States.
Nothing shows that you are a novice or inexperienced Agent or Buyer if you indicate your Target price is based on US FOB Prices.
Letter of Credit has to be Top 25 or Top 50 International Banks
99.9% of Brazilian Yellow Corn Exporters require that the Letter of Credit be issued by a Top 25 International Bank, some might even accept Top 50 Banks. This requirement is due to Brazilian Sellers having more security with an established and well known bank with considerable assets in comparison with a unknown bank.
Lets say a Buyer issues an LC with an Unknown bank in the middle of nowhere, that does not even have the funds to cover the transaction if the Buyer defaults. What happens to the 12500 Metric tons of Yellow Corn sailing to the Buyers Port?
If a buyer does not have an account with a Top 50 International Bank, the Buyer can request his or her bank to request a Top 50 Bank to Confirm or back the Letter of Credit. This means that in the case of default of payment by the Original Bank, the Advising Bank bears all the risk.
There is no such thing as Loading in 5 – 10 Days at the Port.
Many Importers request loading of Vessel in 5 -10 Business days after confirmation of Payment Instrument. The process and magnitude of transporting Yellow Corn by Trucks from the Producer warehouse in Matto Grosso, Tocatins to the Ports of Santos, is not a quick process. Due to the lack of infrastructure in Brazil, Yellow Corn is transported to the Port of Santos via Trucks. So imagine asking an exporter to send over 500 to a 1000 trucks to deliver Yellow Corn in 10 Days and load in a vessel. Its quite impossible. Normal time for Loading of Bulk Yellow corn depending on the quantity you bought takes 3 -5 weeks of ground transport to the Port of Santos from a Farmers or producers warehouse in the Corn Producing states.
We hope this post assists Importers and Buyers looking for information on how to buy yellow corn in Brazil and the process they can expect. With the amount of Fraud in International trade, understanding the Seller Market is crucial to lowering your risks.
For more information on how to Buy Yellow Corn from Brazil. please contact us at Shipfrombrazil.com