Brazilian stocks of corn may fall to less than 3 mln tons

Porto Alegre, August 30, 2021 – Regardless of any global situation, Brazil has a trajectory of worries ahead, until the start of the 2022 second crop. The equation between domestic production and demand, taking into count what is really being imported and what will be exported, is the final symptom for internal supply. Of course, the 2022 summer crop is important to also balance this supply, as well as the rain Brazil in September to allow the soybean planting in the summer as well as a big planting of the 2022 second corn crop. Amid all this is the selling decision by growers. At this time, still at harvest and with the expiration of the growers’ debts, sales are emerging and pressuring prices downward.

Safras & Mercado revised the Brazilian corn crop from 90.3 to 89.3 million tons. The review was necessary due to the evaluations of productivity in the Brazilian second crop, especially the final portion of Mato Grosso and Goiás as well as most of the other states in the Center-South that cultivate the second crop. The second crop is falling from 56.7 to 55.7 million tons.

These are not data that radically change an extremely serious supply scenario. The key for corn supply until the start of the 2022 second crop depends on the following points:

– Effective volume of imports, particularly from Argentina, since the potential volume from Paraguay is already known at 1.8 million tons. So far, a little less than 400,000 tons are arriving from Argentina, 164,000 tons in August and 105,000 tons in September. Perhaps, if the government approves the withdrawal of PIS/Cofins, these volumes can be accelerated. For now, they are not enough to bring tranquility to the market;

– On the other hand, the schedule of corn exports now amounts to 9.8 million tons, that is, half of the year’s goal of 20 million tons, fully attainable. Price lows in the domestic market may lead trading companies to comply with exports and stop with washouts in the domestic market. September may be fundamental to this final export number. Exports of over 5 million tons this month puts us at a point of concern about the future corn supply in the domestic market unless imports increase;

– Internal demand does not offer any sign of slowdown. In all segments, the signs seem to be of continued demand projected for the second half of this year, particularly for chicken and pit farming, the two segments with the greatest demand in the country;

– In the South region, rising use of wheat and rice in feedstuff;

– Spring rain brings two important variables. The first one is that it makes possible an earlier summer planting or in a good environment for a corn harvest from January in the South and February/March in the Southeast. The other is that it can allow the soybean planting to occur within a normal window and consequently allow a perfect window for the 2022 second crop.

– Once again, La Nina is the climatic point of attention and may bring some kind of surprise ahead for this summer crop;

– The international price framework is a fundamental variable. If trading companies reduce the conversion of corn from exports to the domestic market, due to lower prices in the domestic market, the supply scenario may be complicated ahead.

In general, these are indicators for the internal supply equation until the 2022 second crop. All of them, somehow and at some point, must influence prices. At this time, for example, pressures to pay off debts, purchase of inputs for the summer crop, attempt to sell low-quality corn to avoid stockpiling, a portion of consumers holding stocks, and trading companies still selling in the domestic market promote the decline in domestic prices. This must be considered normal and seasonal. Brazil is reaping 55.7 million tons, and all this volume is not absorbed immediately. Therefore, August is almost over, and the market having offers and some selling pressure seems normal.

The question is the moment after the end of this selling pressure. Domestic prices are now below import costs, and the math is not very favorable for sales by trading companies in the domestic market. As soon as growers reduce this pressure with isolated sales, would a new wave of price highs be possible? The big question is that if Brazil exports 20 million tons or more, Brazilian carryover stocks will not exceed 3 million tons and may even be zeroed. In some regions, there will undoubtedly be no carryover stocks.

This condition can lead some consumers to make some bets. The first is that with the rain coming in the spring, growers will quickly start planting. Once again, the theory of a crop in January, March, or May can be created. The past three years have been a commercial disaster for consumers who bet on this first-half bearish bias. It seems some will try to bet again on this summer crop bias, spending the year without holding stocks and at the mercy of the harvest and summer crop supply. There is a current that joins this picture and makes an additional bet that at the end of this year and January, growers who held corn will either need to sell at the end of the year due to liquidity problems or empty warehouses for the entry of the soybean summer crop. Regionally and locally, maybe this is really possible. However, it is not a reliable possibility to the point of showing a solid trend that growers will sell and lower prices by the end of the year.

Thus, in general, we are really concerned about internal supply. We do not believe that by the end of the year there will be corn remainders in warehouses to the point of dropping prices, and the summer crop, without carryover stocks, will be aggressively demanded. Thus, such seasonal pressures must be considered normal, but the attention to extremely low carryover stocks is a point to be carefully evaluated by the Brazilian consumer sector.

Safras & Mercado

Tags: corn, corn crop, Brazil, crop