Porto Alegre, December 3th, 2024 – The escalation of the currency devaluation in Brazil always generates price movement at ports. Exports are becoming more competitive, exporters are acting more aggressively in their purchases, and the domestic market is seeking to compete for volumes amid the exchange rate movement. On the 11th, the Monetary Policy Committee (Copom) meeting may provide more room for some currency adjustment, with a new high in the Selic rate. Until then, the market will have to live with this financial variable influencing domestic prices. At the end of November, there was some supply and, as with fattened cattle, the market tried to influence the B3 (the Brazilian futures exchange) by stimulating producers to sell corn. However, the exchange rate ended up once again holding back sales more intensely. In any case, we are at a time when producers also need to sell part of their stocks and free up warehouses for the new crop.
On the 11th, the last meeting of Copom this year and of the current president of the institution is expected to grant another interest rate high in Brazil. The initial projection was 0.5%, however, with the fiscal situation quite deteriorated, the high could be 0.75%. Whether this will be enough to hold back the exchange rate and meet the public debt rollover will only be possible to assess later on. In fact, debt growth seems to be out of control, and, with the consequent rise in inflation, real interest rates may fall, requiring stronger measures.
This monetary policy approach has two impacts on Brazilian agribusiness: higher taxes and higher interest rates. It is not enough to point out that agricultural prices rise in line with the exchange rate, since the entire cost chain grows at the same rate. Therefore, the effect of the exchange rate on agricultural prices is actually null in the medium term. Furthermore, premiums are falling with the stronger dollar, neutralizing part of the exchange rate gains for prices. Even so, afraid of deteriorating events in the economy and rising uncertainty, producers slow down sales, and domestic prices once again create a bullish environment.
The current situation in the Brazilian corn market also reflects an improved selling interest. There are few soybeans to sell, and cash flow needs lead producers to sell still-stored corn, which leads to an improvement in supply and price stability. This is basically what happened in the second half of November. Prices settled down in some regions, such as Paraná, Minas Gerais, São Paulo, and Goiás. This does not mean that the market has come to a standstill.
In fact, sales were quite intense, as domestic consumers and exporters began to absorb good lots due to improved selling interest. In Paraná at BRL 68/70, Goiás at BRL 65/66/67, São Paulo at BRL 69/71, Minas Gerais at BRL 65/67, and Bahia back to around BRL 65. However, in some regions, prices failed to drop due to the lack of supply, such as in Mato Grosso do Sul, Santa Catarina, Rio Grande do Sul, and Mato Grosso. In Mato Grosso, the market has set a price floor of BRL 60, and business has not been able to move below this level. Piauí and Maranhão are experiencing the impact of the exchange rate and have prevented new lows.
The big highlight of this movement in November is that many large consumers have positioned themselves with stocks for December and are starting to move forward to January. Exporters have also started to bid and make purchases for December and January shipments. And, since there will be few soybeans to ship at national ports in January, this logistics will still be met with corn. If there is space in ports, in terms of logistics, a depreciated exchange rate, and domestic corn supplies, exports will still move forward in January.
Now, Brazilian shipments are approaching 5.1 mln tons in November and jumped to 2.8 mln tons in December. We believe that December should move toward a potential shipment of 3 to 4 mln. The January line-up is still zeroed and we will need to wait for the progress of scheduled exports to understand January’s potential. We still believe there may be additional shipments of 5 mln tons between the December extras and the January flow, mainly with the help from the exchange rate and greater selling interest by producers.
Meanwhile, market agents are trying to focus on future prices on B3, exerting a very aggressive bearish power and blurring market prices with the physical reality. In the case of fattened cattle, this distortion hinders the expansion of investors in the Brazilian futures market. In the case of corn, there is also an attempt to provoke the same movement, aggressively lowering futures in order to influence producers to sell in the physical market. Unfortunately, the Brazilian futures market allows this type of financial action that is out of step with the physical reality. Like in the case of fattened cattle and mainly corn, these futures prices do not reflect the reality, and futures prices will likely rise again.
The summer corn crop has performed very well so far. Rainfall in summer crop regions continued to be good last week, alleviating some isolated regional situations and offering very good potential production performance in early-planting regions in the south of the country. The harvest in Rio Grande do Sul should begin in January, helping to supply a large part of the state, as well as Santa Catarina. The only doubt so far is the producer’s decision at harvest for either silage or grain, as the period can allow both procedures. Prices for the new crop are aligned at BRL 70 in Missões for January. If there is any selling pressure during the harvest, we believe it will be short-lived.
Safras News