Porto Alegre, December 14, 2021 – As the rainfall forecast for November was not confirmed, the situation has become problematic again to the crop in Rio Grande do Sul, particularly. La Nina is becoming more evident every week and taking shape in the global climate. Excess rain in the Northeast region of Brazil and lack of rain in the South is a classic characteristic of La Nina at this time. The region registered a great crop start, but unfortunately part of the production now depends on good rainfall in December and January.
The NOAA’s maps are confirming a more evident presence of La Nina this December. Temperatures in the Central Pacific waters are cooling every week and keeping the summer more intense. The NOAA’s projections indicate La Nina will remain at least until July in the global weather. For South America, as La Nina is being confirmed, the summer is featured by excessive rainfall in the center-north of South America and below normal in the Center-South. The biggest targets have been Argentina and the south of Brazil in the last events of this phenomenon, and it does not seem it will be any different in 21/22.
In November, the rain arrived early in the Matopiba region, allowing an earlier crop or in a good window and continuing with normal to above-normal rain in December. The Center-South region divides the picture into situations close to normal or at the limit, already with production losses in Rio Grande do Sul.
November marked the decrease in rainfall in Brazil’s Southern region. However, with some soil moisture reserve, plants still managed to maintain some positive outlook for production in the first half of the month. Rain forecasts for the second half and early December failed. Rains in December, until now, only occurred last week in the east of the South region. So, we have a new big pocket of drought that started in Rio Grande do Sul and expands to the midwest of Santa Catarina and west and northwest of Paraná. In this pocket, the rain coverage for the last 30 days ranged from 20 to 70mm, being worse in Rio Grande do Sul and better in Paraná and western Santa Catarina.
The biggest problem in Rio Grande do Sul is that many crops were going through the pollination and silking stage in this period of less rainfall and high temperatures. Corn even pollinated but ears were unable to grow and/or fill the pods satisfactorily. Therefore, in several locations, growers are starting to use part of their harvest for silage or trying to make the soybean planting feasible in the areas with total corn losses. Even in areas where there will be some production, the yield must be much lower than expected.
Losses in Rio Grande do Sul should be between 40 and 50% if the rain forecast for this third week of December is confirmed in good volume. Otherwise, losses may be greater. Santa Catarina may have 10 to 20% in losses in the west, according to information available so far, and Paraná is still depending on the December and January rains.
With these losses, we must consider that the summer crop will not reach the market in a uniform way. The only region that reaps in January/February is exactly the west of Rio Grande do Sul and Santa Catarina, where the biggest losses are. Other regions of the country must be reaping by the end of March and April, that is, after a strong soybean harvest. So, between January and April, the possibility of a rush on either new corn to be harvested or old-crop corn remainders could put prices back to an upward curve.
The summer crop losses are a factor that will limit availability in the first half of 2022. However, good exports in December have just decreased the surpluses that would be traded in this transition into the business year. Corn consumers were very concerned about using instruments to bring down prices. They brought prices down far beyond export parity and cut purchasing liquidity in the domestic market. Exports resumed the absorption of these surpluses. Now, December has cumulative scheduled shipments of 3.6 mln tons and accumulates 19 mln tons this year. January suggests 2 mln tons in shipments, according to trading companies, which would take the annual shipment to 21 mln tons.
Naturally, as there are no signs of retraction in domestic demand, stocks may fall to the level of 3 to 4 mln tons, the lowest since the last major supply crisis, which was in 2016. This stock will also be practically half of the one registered in 2020/21, with 6.5 mln tons. So, these two new pieces of information – higher exports and production losses in Rio Grande do Sul – bring us important changes to the price curve for the first half of the year. We must add that the first four months of the year always have a very strong concentration of logistics on soybeans. This year, despite the initial problems in the crop of the South region, soybeans will arrive earlier, with great export appeal and strong logistics direction for this commodity. It seems natural that freight and the preference for soybeans will create difficulties for corn. Without a lot of summer corn harvest in the period and coping with difficulty in long-distance freight, regional corn prices may regain strength in this period.
The search for the extension of the PIS/Cofins exemption may be successful. It would not be a problem for the government, despite the harvest time in Brazil. However, the current import cost, without this tax, is BRL 103 CIF Brazilian port, that is, far from current prices. First, the domestic market would have to go up to make imports viable. Besides, Argentina continues with new export registrations closed, and it seems they will only be reopened when the 2022 Argentine crop presents a safer production situation. For now, the Argentine crop is normal, with weekly rain in the Nucleus region that includes Córdoba, Santa Fé, and Buenos Aires and has no relationship with the climate situation in Rio Grande do Sul.
Therefore, supply alternatives for Brazil in the first four months will be limited to the new corn that will be harvested in each region at its own time. The alternative of importing corn is currently unfeasible, as the old-crop stocks have been depleted due to exports, and consumers seem not to hold long-term stocks to inhibit such a bullish movement in the first quarter of 2022.
Agência SAFRAS Latam
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