Porto Alegre, November 14, 2022 – Until October, the expectation was for a good flow of Brazilian shipments of corn followed by retraction from November onward. October registered a record for the month, and November marks the highest exports ever registered in the period. This allows us to confirm a trend of Brazilian exports that could surpass the record of 41.2 mln tons set in 2019. With these volumes, the domestic market would tend to rise. However, we have a consumer sector that is more prepared in stocks and producers who are more focused on freeing up warehouses for the start of 2023 due to the upcoming excellent soybean crop.
With a record crop in 2022, the environment of domestic demand and exports is fundamental for the formation of domestic prices in Brazil. Initially, we have more sorghum this year, including some low-standard wheat in Paraná and Santa Catarina, which are collaborating to equalize this domestic demand for corn. The demand for corn has surged for ethanol production, and the housing of breeder chicks has increased in the second half of the year. Therefore, there are no problems with Brazilian domestic demand, which follows its seasonality and plans set for this year.
On the other hand, exports follow a cycle of global demand for Brazilian corn. We have very high prices for US corn this second semester, despite the harvest since September. High premiums in the Gulf of Mexico over the past sixty days have shifted corn demand from the United States to Brazil. Japan, for example, one of the biggest buyers of US corn, was the biggest buyer of Brazilian corn in October, with astonishing imports of 1.4 mln tons. Egypt, a traditional buyer of corn from Ukraine, absorbed 700,000 tons of Brazilian corn in October. Both of them surpassed the traditional largest buyer of Brazilian corn, Iran.
Thus, we must understand that the difficulties generated by the war in Ukraine, despite the export corridor, narrow supply at the end of the year in Argentina, and the expensive US corn have offered a favorable combination for Brazil. In October, Secex pointed to over 7.2 mln tons in shipments, a record for the period, even though the line-up actually showed fewer shipments. For November, Brazil must set a new export record, with 6.5 mln tons on schedule, having already shipped 1.8 mln tons in the first ten days of the month.
The surprise of this November schedule and the beginning of schedules for December, as well as the still permanent presence of trading companies for corn purchases with December and January shipments, leads us to project the chance of a new record of shipments by Brazil in the current business year. So far, we have 37.4 mln tons committed. We still have the complement of the December schedule and the month of January. There is external demand, space at ports, now improved exchange rates, and the intention to sell internally due to the need to empty warehouses until January. The chance of exceeding the 41.2 mln tons of 2019 is great, and this must reduce Brazil’s carryover stocks to just over 5 mln tons. The higher the shipments of this business year, the lower the carryover stocks for 2023.
The market, however, should not confuse the selling pressure of this last quarter with the clearance of warehouses with high carryover stocks. Until January, domestic demand alone absorbs 21 mln tons of domestic supply plus 6/7 mln tons that can still be shipped in exports. If there is sales pressure now, we cannot consider this as a lack of demand or that there will be a lot of stocks left for 2023. That only means that the acceleration of the sales intention to vacate warehouses prevents a collapse from occurring in the face of the super soybean crop that is forecast for 2023.
Trading companies will absorb Brazilian corn only through the port of Rio Grande in February/March. In other ports, soybeans tend to occupy all possible spaces of logistics in Brazil. Corn will need to make room for the arrival of this soybean crop. Therefore, we will have a market profile until January, with the maintenance of strong demand from trading companies and strong shipments at ports, emptying the internal surplus. As of February, the focus will change, corn-trading companies must leave, and domestic market buyers return as the focus of price formation. At this point, freight, logistics, harvest, and the producers’ decision will define prices between February/June, amid other indicators, of course, such as the development of the 2023 second crop.
Imports, in turn, continue at a good pace. We now have 1.9 mln tons already imported by the Brazilian market until October. If the pace of entry is maintained until January, we can reach 2.5 to 3 mln tons imported.
While this trading picture goes on, the Brazilian summer corn crop is developing well. Another week of great rains, now reaching the Southeast, a good part of Goiás and Mato Grosso, as well as part of Matopiba, keeping the development profile within normal. There is a new forecast of rains for the South region this week, in crops that are already entering the silking stage. Two or three rain occurrences in regular volume in December would maintain a good forecast for the summer production.
For Argentina, the picture is still delicate. The planting reached 23% last week, against 29% in the same period of the 2022 season. It is not a significant delay, but the rains have not yet managed to bring soil moisture back to normal in the Core region that comprises Cordoba, Santa Fé, and Buenos Aires. There is a good forecast of rains for this week in these locations, and planting can proceed. As it is still a La Nina, all attention remains focused on this rainfall regime for the next few weeks, and the critical phase for crops will be January/February, the period of pollination and silking.
As long as no additional weather factors emerge in South America, markets will consider a pending risk due to La Nina, but the consolidation of an upward movement will only occur with the worsening of the weather scenario. Some international sources point out that the South American crop could lose 30% of production due to the La Nina year. A statement like this alone does not serve to confirm a picture of possible crop failure. In fact, so far, this hypothesis of a failure at such levels has not been confirmed to the point of sustaining the market at the current prices on the CBOT and/or in Brazil for the harvest period of the two main commodities, corn and soybeans. Corn still has external variables that can help to sustain itself in the first half of the year, when the 2023 second crop must be planted within an optimal window, which relieves Brazilian domestic supply and prices.
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