Porto Alegre, June 18th, 2024 – The tax trauma of the turn of the month in the Brazilian domestic market, little by little, is fading, with things moving back to normal. Producers, traders, cooperatives, and consumers paralyzed business until a better understanding of the provisional measure. Little by little, the market has begun to resume business and the flow of second-crop sales, mainly in the Midwest. Another point is the dollar’s escalation against the real. Many producers also believe in hikes due to the exchange rate, however, they ignore the CBOT lows. Export demand, it is clear, returned to Brazil with a more concentrated flow after August, regarding immediate shipments.
Thus, domestic prices try to adjust to export parity as the harvest progresses, and there is a need for liquidity for larger volumes.
The Brazilian domestic market is trying to recover after the shock of the provisional tax measure that practically paralyzed domestic trade and even cast doubt on Brazil’s ability to continue exporting competitively. It is clear that the government’s decision-making focuses on increasing the tax burden on Brazilian agribusiness, as well as the urgent desire to tax exports, directly or indirectly. For now, the internal productive forces were able to block tax aggressiveness, but we must understand that the government will resume this attempt in another way.
With the normalization of domestic sales, the pace has also sped up, as the harvest of the second crop was going on and domestic prices even registered some improvement with the exchange rate. The devaluation of the real has brought an improvement in port prices in recent days. Business prices ended up increasing from BRL 62 in shorter shipments to BRL 64.50 for October/November, in Brazilian ports. With the second crop in Mato Grosso advancing, the largest volumes are being sold in this state, as well as in the Matopiba region, that is, the North Arch. There are still difficulties with large volumes for the ports of Paranaguá and Santos. In Santos, there is still no shipment appointed for June and early July. Plenty of soybeans have still been shipped in Brazilian ports, and, as long as this flow decreases, the corn environment will become more evident.
To date, however, the initial export pace for this 2024 crop remains slow. June now has 1.16 mln tons on the schedule, with 405 thousand tons already shipped. Slow July, with only 166 thousand tons scheduled. These volumes will rise every week. The focus now is on the monthly average shipments. Averages of 5 mln tons/month until January will imply a shipment of nearly 40 mln tons this year, which is this year’s target. Something above that will cause internal stock adjustments, and below that, larger carryover stocks. It is quite clear that this year’s great exports will be carried out through the North Arch, leaving a low pace in the ports of the South and Southeast. All of this will depend on the internal competition with exports. Trading companies would have logistical commitments driving to a flow of 30 to 35 mln tons of corn in the second half of the year, not least because there will not be so many soybeans to compensate for such volumes. Some fluctuation of the CBOT together with the exchange rate could drive Brazilian sales up to 40 mln tons. This is not a necessarily expected number but is the key number for the Brazilian supply and demand picture.
The domestic market has prices that are still firm in the South and Southeast regions, especially due to the losses in second-crop production and the restrictions on sales by producers in a situation of soaring dollar. However, we can notice that Paraná has begun to accept more levels of BRL 54/55/56 in the interior, slightly above export parity, as well as São Paulo at BRL 55/56 in the interior. The resumption of business with taxed corn for São Paulo once again put pressure on local prices. Harvest, logistical pressure and sales interest end up bringing supply to the market. Minas Gerais has more stable prices, still awaiting the harvest profile further ahead.
In the South of Brazil, production losses in Mato Grosso do Sul, northern Paraná, and Paraguay leave this view of lower sales pressure to cover local supply. However, in the next sixty days, supply will arise, the selling will grow, and business must flow. At this point, competition with export liquidity for large batches is the point of attention.
From the point of view of domestic demand, there is still strong consumption in the meat sector and the natural advancement of the ethanol industry at regional buying hubs. At this point, purchases have been more aggressive by industries in the Mato Grosso do Sul market, which leads us to believe that the state is expected to export little corn in 2024 due to the loss of production and its regional demand. Some consumers are buying corn from the south of Mato Grosso to guarantee stocks for local industries. This situation also hinders the long-term supply of northern Paraná, Santa Catarina, and Rio Grande do Sul (states that get supplies from Mato Grosso do Sul). CIF prices in such locations would be less likely to fall due to the cost of logistics of more distant volumes. Paraguay, for example, has not yet established strong pressure on the Brazilian market, despite good production in the south of the state, due to demand from the local ethanol industry.
General price hikes in the Brazilian market are still difficult over the next ninety days. For this to happen, we would need new facts such as: problems in July in the US climate, an even more pronounced hike in the dollar, and a monthly export flow above 5.0 mln tons. It seems that without this combination, or some new fact that has not been considered, the space for internal highs would still be difficult. The post-harvest period of the second crop will depend on these indicators to achieve some recovery in prices to a better level for producers. The summer crop planting profile, in a La Nina year, will be one of the points of attention after September.
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