Porto Alegre, October 25, 2022 – The Brazilian corn crop had some corrections in this October update. The 21/22 crop was increased due to better yields in most producing regions, including Mato Grosso, during the second crop. The 22/23 crop shows an improvement in the production potential profile given the good weather conditions of this 2022 spring. Of course, in a La Nina year, all attention needs to be directed to yields, however, we should not project production losses as long as the weather does not bring direct effects. Attention continues to be given to Rio Grande do Sul and Argentina with the risk of below-normal rainfall between November and January. Important adjustments are also being made to the Brazilian supply and demand scenario, with record demand in the ethanol sector and higher corn exports.
The update of production data by Safras & Mercado this October begins to consolidate the 22/23 cycle and signal the next 23/24 cycle for Brazilian supply and demand. Initially, there was an update on production for the 21/22 crop. Slightly better yields in the 2022 second crop corrected production to 84.4 mln tons and the national output in 21/22 to 119.5 mln tons. An excellent crop in the Northeast of the country, with productivity assessments still starting to be carried out in the Sergipe region, may still change the final numbers of the national crop. A good pace of imports, mainly from Paraguay, continues to contribute to the national supply.
There were also adjustments in the national demand picture. The Brazilian domestic demand showed some slowdown on the poultry side, which should not remain for this second semester. There was also a false impression of production cuts in the swine industry or, at least, the cuts that came this year have not been enough yet to reflect in a smaller herd of swine and, consequently, lower domestic demand for corn. Demand remains strong in both segments, and there are no signs of reversal this year.
Two other relevant points for this domestic demand are in the ethanol segment and in corn exports. High fuel prices since 2021 seem to have accelerated corn crushing in the ethanol segment to a surprising extent. Thus, from an initial estimate of nearly 8 mln tons, the update of the demand potential for 2022 jumped to 11.5 mln tons, against something close to 7 mln tons in 2021. Basically, the strong expansion is in Mato Grosso and, now with the start of activities, Mato Grosso do Sul.
On the export side, appointments in October indicate potential shipments of 6.7 mln tons, a record for the month and very close to the September figure. Year-to-date, we now have 32.6 mln tons with ships already scheduled for November. For this reason, we are raising the Export projection for the year to 39.85 mln tons, not only due to what has already been done but also to the permanent demand from trading companies for shipments from November to January, and already starting the demand for shipments in February/March via Rio Grande. This without any Chinese buyer movement in the Brazilian market so far. Owing to the projection of a strong soybean crop, Brazil will not have room in other ports for significant shipments between February and June.
With this combination of factors, carryover stocks drop to 7 mln tons, which added to the Brazilian summer crop of 2023 are sufficient to meet domestic demand until the beginning of the 2023 second crop.
Regarding the 22/23 crop, the first point to be evaluated is that productivity projections have improved for the summer crop. Weather conditions are favorable. We can mention that the excess of moisture in some locations, the still low temperatures in October,l and low luminosity are factors of attention for the result of productivity later on. However, we remained focused on this summer crop with yields within the normal regional average. Now, the rains expand to the Southeast and Midwest with the summer planting advancing. Production potential in the Center-South of the country reaches 25 mln tons, a volume that will find total space in domestic demand.
The 2023 second crop presented updates for some regional area corrections. There is still a combination of factors present, that is, high planting costs with unattractive prices signaled for the 2023 second crop. There is still roughly 25 to 30% of the second crop input market to be negotiated. Then the next ninety days will define the area. On the other hand, planting soybeans in a good window allows producers to see a good window for planting the second crop, and this motivates the purchase of inputs. Some locations still have rain delays, such as the east of Mato Grosso, center-north of Goiás, and Minas Gerais, holding the pace of soybean planting and leaving a window for more concentrated corn in February/March.
Production potential of 87.8 mln tons in 2023 for the second crop. Matopiba must cut the summer area for corn, mainly in Bahia. This cut tends to be offset by planting the 2033 second crop and/or sorghum, a crop that has been expanding well in the region. Thus, the national output is estimated at 126.3 mln tons, still paying all attention to La Nina’s effects on the crop in Brazil’s South region and Argentina.
The neighboring country, on the other hand, continues with a strong delay in planting and a climate situation still without enough rain to start working in the Nucleus region, which comprises Córdoba, Santa Fe, and Buenos Aires. Rain is forecast for late October, which may dictate the advance of planting. As it is La Nina, all the attention is focused on Argentina, but for now only one crop must occur later.
The Brazilian supply and demand scenario for the next business year, 23/24, indicates that, with a crop without serious problems, we will need to export 42 mln tons in 2023, even with the increase in demand projected internally, including the ethanol segment.
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