Brazilian domestic market of corn tries to find support factors for 2024

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Porto Alegre, October 31, 2023 – The Brazilian domestic market of corn showed an upward trend this October. Natural post-harvest movement supported by higher port prices. Prices at the port were sustained by the CBOT, even during the harvest in the USA, the exchange rate in Brazil, and the strong flow of exports in September and October. Some participation from the drought in the Amazon contributed more to concentrating new volumes in other ports in the country, such as Santos. Higher demand in Santos, with better premiums, helped support prices in São Paulo and, consequently, future prices on B3. From now on, the market will depend greatly on the selling needs of growers, the maintenance of good exports, and the arrival of the 2024 summer crop.

The Brazilian corn market is tense due to the fact that market prices cannot reach a certain level that enables profitability and business agility, especially for the 2024 second crop. Barter and business volumes for the second crop are small. With this, the market tries to create environments to move business and expectations. Among these signs is the use of the media focusing on production losses in the 2024 crop without even being planted or pointing out that soybean replanting will translate into heavy losses in the national crop. It is clear that there are delicate signs for both soybeans and second-crop corn in Mato Grosso, but we are far from an effectively critical situation. Furthermore, a reduction in planted area in Brazil is not necessarily bullish for prices.

Domestic corn sales in Brazil were slower last week. Port prices fell during the week due to the CBOT and the exchange rate. Levels of BRL 64/65 in Santos and BRL 60/63 for other ports. So, the business movement toward BRL 67 in Santos has slowed down, and trading companies held back the movement. The recovery or not of these port prices will depend on the CBOT and the exchange rate.

Owing to the volume of shipments scheduled, even for November, it seems difficult to get a greater price adjustment at the port, especially due to the purchasing needs of trading companies. October now has 8.6 mln tons on the shipping schedule, with 6.9 mln tons already shipped. October had 10.5 mln tons in the shipping schedule. Much of this volume has been transferred to November, which now has 7.6 mln on schedule. On the other hand, there were some cancellations in the schedule. In the year to date, we now have 45.1 mln tons shipped, shipping, and already scheduled for shipment. So that the year’s target of 55 mln tons is reached, 10 mln tons are needed in the December and January schedules.

The possible loss of shipments at the end of the business year is linked to the grower’s retention in the interior and the difficulties in obtaining large lots in the interior, in regions where logistics become viable. At this moment, sugar shipments are beginning to crowd Paranaguá and Santos, which tends to limit space for soybeans and corn at the end of the year.

With the closing of the business year next January, some highs are expected at the end of the year, while consumers still believe in sales pressure to release warehouses with a view to the arrival of the new crop. Minas Gerais and São Paulo’s prices have gained strength in recent days due to accelerated retention by growers. Some estimates show that both these markets would have already sold plenty of corn in exports, and the situation would already be adjusting. It seems difficult for Minas Gerais to have exported enough to empty the local market. São Paulo may have because of Santos.

At the same time, we still notice plenty of supply in Mato Grosso, and there is no stress for consumers to continue buying corn below BRL 40. In Goiás and Mato Grosso do Sul, good sales have already been made in exports, but there is a focus on space for the new crop. So, sales pressure from the Midwest may still emerge at the end of the year. In the South, in turn, despite the intensity of rains, losses to the corn crop cannot yet be identified. The issue in the South region is this supply potentially still available in Mato Grosso do Sul and Paraguay, as well as the supply of low-standard wheat now appearing on the local market, and the excellent crop that is shaping up in Rio Grande do Sul for January. Rain and low luminosity can lengthen this corn cycle, resulting in a later harvest. In any case, some demand to meet New Year’s demands seems normal, without translating into a completely bullish curve so far.

On the other hand, there are many comments about the 2024 second crop. The first, which we have already highlighted, is that there will be an inevitable reduction in technology applied to the 2024 second crop. Costs and prices highlight this situation. The second is the possibility of a reduction in planted area. There is indeed a movement in Mato Grosso and part of Matopiba to reduce the area for the corn second crop. The attempts are varied, from sesame to sorghum as alternatives. However, there is a type of quite useless comment reaching the market that ranges from a huge soybean crop failure to a giant loss of second-crop corn planting next year. In 2022, about the 2023 season, many of such comments reached growers, causing them to retain soybeans and miss the best selling time.

Now, the difficulty of rebalancing costs and prices for the 2024 second crop is limiting business. There have been restrictions on the sale of seeds for the 2024 second crop, industries have difficulty in closing barter operations with growers, and the flow of input sales does not advance. Prices for the 2024 second crop are pegged at BRL 62/63 at the port for August/September, a level that maintains the references of BRL 40 in Mato Grosso, BRL 45 in Goiás and Paraná, and BRL 42 in Mato Grosso do Sul. It is clear that these prices do not motivate growers, who delay the purchase of inputs in the expectation of equalization with costs. Some are waiting for a decline in seed prices to make planting viable.

Some information channels try to encourage an early bullish movement for the 2024 second crop, perhaps to make this flow of input sales feasible in the sector. The theory is that the second-crop window is being lost in Mato Grosso. Well, so far we have 71% of the soybean crop planted in the state, equivalent to 8.4 mln hectares. Even if part of this area is being replanted or is set for cotton crop areas, the area available for the 2024 second crop of corn is guaranteed. Of course, if November is bad in terms of weather and requires strong replanting of soybeans, the area for the 2024 second crop will be compromised. For now, let us stick to mathematics.

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