The Brazilian corn market is now moving into the pre-harvest of soybeans, a combination that seems odd for corn prices. However, it is of great importance for the configuration of supply in the first half of 2023. The harvest of a record soybean crop will start to use all logistics spaces in the country, including the raise in freight prices quickly. This is the first point for the corn market environment, that is, an increase in logistic costs. Then, unfortunately, the Brazilian corn consumer market played the game of “not stocking up until the arrival of the second crop.” In theory, if everyone stays with low stocks, summer corn may be enough to meet demand until July, when the 2023 second crop arrives. However, in the meantime, exporters have done their job to meet the voracious world demand, exports are setting records, and carryover stocks will pass at extremely low levels. This internal demand strategy will have a very high cost to internal supply, and changes in future prices on the B3 will not be enough to contain the problems that will arise.
The housing of breeder chicks has jumped since August 2022 and enters 2023 with levels above 600 mln head/month, a new record. Regardless of its effect on the meat market, from the point of view of corn, it boils down to more domestic demand. Ethanol with growing and record production in this business year that is coming to an end. Pig farming without lowering production, maintaining corn consumption high. So, there is no sign of a slowdown in domestic corn demand at the beginning of 2023, and it does not look like there will be any in the first half of the year.
On the other hand, corn exports now reach 47.5 mln tons with the January schedule. Perhaps, for common reasons, trading companies will not be able to close all the shipments of over 5 mln tons scheduled for this month. But the volume is too high and has set records every month. And this has nothing to do with China. We have a projection of 45.5 mln tons awaiting the end of January, but the accumulated volume is already at 47.5 mln tons.
What is the problem with these record-breaking and surprising exports by Brazil in the 22/23 season? The result is a reduction in stocks to only 4 mln tons, and if the January shipments are confirmed, stocks could be even smaller. The last time the consumer market ignored the forecast for very low stocks and decided to go ahead with trading in the first half of the year without worrying was in 2015 to 2016. That year, the Conab estimated carryover stocks of more than 10 mln tons while the private sector pointed to 4 mln tons. The strategic failure of corn consumers was evident, the rise in prices and demand for corn was frightening, and it was the first year when the consumer sector needed to cut demand to adapt to supply. The “luck” was that prices rose to import cost levels, and it was possible to find offers in Argentina and even the United States to meet domestic demand, with a record volume of 3.3 mln tons in 2016.
At the beginning of 2023, we are again in a similar situation. Exports absorb regional offers, and each week the line-up seems to take away the last kilograms of corn from the country. Carryover stocks will be extremely low, and the domestic market is on the cusp of the arrival of corn from the summer crop. At this point, the beginning of the soybean harvest begins. The increase in logistics costs in a record soybean crop is already a preponderant factor for the rise in CIF corn costs in the first semester.
However, the summer crop will be extremely demanded regionally, either because bringing corn from long distances will be very expensive or it is almost impossible to bring corn from Argentina at an affordable price at this time. So, the strategy of consumers over the last two years has been the maintenance of low stocks, buying only what is needed for the short term and, whenever possible, adjusting the announcement of imports from Argentina to hold back bullish expectations. There is also constant work by trading desks to contain the flow of highs in futures prices on B3, taking into account that without rising futures prices, producers are discouraged by retention and sell physical corn as they see the chances of price highs diminish. This practice is already resumed in the March contract on the B3 at this moment, that is, trading desks are working to contain prices and expectations.
The point is that the last time the market ignored such low carryover stocks, in 2016, the price to pay was too expensive, and not even the trading desks of the B3 brokerages managed to change the fundamental logic of prices. It was also useless to manipulate prices in São Paulo to contain the high in the settlement indicator of futures contracts on the B3. Fundamental and the physical market spoke louder. And 2023 is drawn in the same way because of huge Brazilian exports, high domestic consumption, the still not so significant crop failure in Rio Grande do Sul, and the position of low stocks in the general consumer sector. The attitude of ignoring the real fundamental numbers of the Brazilian corn market could again cost the national consumer sector dearly. While everyone was working with low stocks, exports tried to make their results and gave liquidity to the flow of sales by producers.
What we notice over the week is a stronger buying action in the internal market at several points of consumption in the country. All large and medium consumers are looking for offers even in more distant locations, more strategic before the soybean harvest. The few harvests in the west of Rio Grande do Sul are being rapidly absorbed between BRL 91/93 FOB. Other regions have no offers or put them at BRL 95 to 100. In Santa Catarina, there was also greater demand and high prices. Business at BRL 94/95 plus ICMS, and offers in the interior of the state still at these levels. There is no interest in selling corn for batches to be reaped in March/April, so the market depends on the offers of taxed corn and the regional harvest pace. As imported corn currently costs nearly BRL 120 CIF factory, the demand for corn at harvest in these two states will be significant.
In Paraná, in the southwest and south of the state, the harvest starts in March and April. Bids range from BRL 85 to 90 in such regions. Western and northern Paraná and Mato Grosso do Sul will have only soybeans until the second-crop harvest.
In the Southeast, the situation may be challenging for consumers. First, because of the local profile of consumers, who do not keep long-term corn stocks. São Paulo, mainly, is operating with short stocks only. From the second half of January, the soybean harvest begins in São Paulo, and corn will be left for later. With no stocks, high costs of taxed corn, and occasional harvest in the interior, the São Paulo market may be ready for a sharp high. The same can happen with Minas Gerais since the strong point of the harvest only occurs in April/May, and the little corn to be reaped in February/March will meet only part of demand. Goiás and other markets have reduced their physical corn stocks, which become a non-viable option for Minas Gerais in the first semester.
Matopiba and the Northeast region have very high exports this year, setting new records. The regional market is being reduced to lower availability. Sealba prices have already risen to BRL 75 at the beginning of the year. It is likely that until the summer harvest in western Bahia in May/June, corn will also find bullish factors in the local market.
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