Brazilian market of corn maintains exports as a favorable point

While the international market accumulates within a certain price range, the Brazilian domestic market looks for some upward movement. Strong monthly exports continue to extract unprecedented volumes from the Brazilian domestic market and adjust supply to regional demand. Until January, the market has internal demand to be met and will still have shipments that may or may not be significant. With the appreciation of the real, the port math gets worse, and it is even possible that this export flow is adjusted in December and January. For now, November exports, with more than 9 mln tons scheduled, surprise everyone.

The international market seems focused on trying to support corn and soybean prices, at least, until the South American 23/24 crop is comfortable for international supply. Until then, media movements and speculation around some theories will occur and are already occurring. The panic generated by distorted information in the international environment causes this type of movement that is going on in the environment of commodity exchanges. The fear of production losses in South America, even in an El Nino year, seems to be the point of attention that resurfaces in global prices. Another point refers to the Argentine election, where the possible change of government seems to “displease” the market, when, in fact, it is the only way to restore the local economy.

The Argentine elections will bring major changes to the country’s economic policy, as it is no longer possible to live with hyperinflation, a completely worthless currency, arbitrary measures toward the growing sector, and an extremely unstable exchange rate. The disconnection with the international environment causes the country to be isolated and the need to earn revenue from exports as the only form of inflow of foreign currency. The new government, whatever it is, will have to use the good 23/24 agricultural production to generate export revenue in dollars, a factor that should be completely unfavorable to premiums and prices on the international market for corn, soymeal, and soyoil.

While the rains return in Argentina, they also occur in Brazil across a large part of the country. The rains are quite intense in southern Brazil. However, so far, this is not a symptom of production losses for corn, possibly just a lengthening of the production cycle. Corn harvests are scheduled to begin in early January in Missões, Rio Grande do Sul, a schedule that could be delayed by excess moisture. Santa Catarina and Paraná have no problems with corn crops so far. The serious problems thus far are with wheat and its low standard and strong germination. A portion of production may not be used even for feedstuff. There is no risk for the 2024 second crop in Paraná and Paraguay.

In the Southeast Region, the rains arrived in good volumes in October, and planting is being started quickly in both summer corn and soybean plantings. The second crop in this region is guaranteed within the normal regional window. There is still only irregular rain for northern Minas Gerais, a predictable situation and a consequence of El Nino that hits the Northeast of the country with possible risks for northern Minas and northern Goiás. In the Midwest, the rains have regularized in Mato Grosso do Sul and a large part of Goiás, in the few places that plant summer corn, but ensuring the advanced planting of soybeans. In both these states there are no risks for planting the 2024 second crop, with attention only to northern Goiás.

In Mato Grosso, some situations are not homogeneous. Initially, not the entire state is having problems with rain, as can be seen in the accumulated rainfall in October. The 2024 second crop window is the point of attention. As we already highlighted in our last issue, the volume of area planted until the end of October, 84%, in Mato Grosso guarantees the volume of area available sufficient to plant the 2024 crop within the window. If there is any reduction in the corn area, it will undoubtedly not be due to the planting window but rather due to negative profitability. If soybean losses occur in November and December, due to additional cuts in rainfall and the need for late soybean replanting, we can, from then on, place an additional risk variable for the 2024 second crop due to the loss of window. For now, we do not consider a trend of area cut for this reason.

If prices for the 2024 second crop were at a better level, without a doubt, the situation in Mato Grosso would not be attracting so much attention. The issue is that the price of BRL 35/40 a bag for August/September 2024 does not please producers and, even more worrying, does not adjust to production costs. What really weighs most on the producer’s decision is the poor exchange ratio in this pre-planting decision. Urea has an exchange ratio of 30 to 40 bags on average, depending on the state, with corn. Last year, it reached 88 bags, and, even with lower prices, today it is still at 47 bags of corn per ton of urea on average.

The case of seeds is perhaps the greatest weight. Normally, the exchange ratio is 10/15 bags of corn for one bag of seeds. This ratio reached 10 bags last year, which promoted the acceleration of technology in the planting of the 2023 second crop. However, at this moment, the exchange is 19 bags of corn for one of seeds, practically a record. And this will reduce the technology applied in this 2024 second crop. Producers are still waiting for some reduction in seed prices for a better cost condition for the 2024 second crop, otherwise they will use the minimum possible technology in next year’s planting.

Therefore, it is not a question of a second-crop planting window but of the viability of cropping. Many producers try alternatives such as sorghum, millet, pasture, and the newest discovery in the Araguaia Valley, sesame. It seems quite clear that the corn area will have difficulties resuming growth due to this production cost ratio rather than to the risk of the planting window, which has not been a risk in most growing regions so far. So, there is an attempt by the input market to try to motivate a very early price high for the 2024 second crop by suggesting large cuts in the area. The price increase would need to occur until January, and for the 2024 second crop, from July to September, to motivate producers to plant and speed up barter business. The problem is that the domestic market will not detach itself from export parity until there is really a disaster with the 2024 corn second crop.

Meanwhile, Brazilian exports continue to surprise. After the effective shipment of 8.3 mln tons in October, a new record, with the Secex maintaining 8.45 mln, November commitments emerge with 8.7 mln tons at Brazilian ports. This year to date, until November and some negotiations for December, we have 46.8 mln tons. The target is 55 mln tons by January. For now, that is fully possible, with the doubt being the shipments in December and January and the breach of this target, which could lead to a reduction in the carryover stocks for 2024. For production estimates below 139 mln tons in 2023, certainly, it will be more difficult to adjust the supply and demand picture for 2024.

Tags: Argentina, Эль-Ниньо, rains, demand, corn, planting, price, Brazil, soybeans, crop, Market