Porto Alegre, August 9, 2022 – The Brazilian market of corn that does not advance. On the one hand, consumers carry out sales at the rhythm of each week, without stretching stocks and waiting for market movements. On the other hand, growers do not accept selling at the prices allowed by export parity and internal liquidity. Retention is always a way of trying to escape harvest seasonality and price pressures. However, this may lead to moments of sales pressure concentrated further ahead without any major new favorable fact.
The creation of high expectations currently sells a lot in the Brazilian agribusiness media. Continuous bullish versions end up convincing producers of certain possible price movements, which causes short-term price support but ends up generating an environment of pressure on prices in a second moment. This is an example of the fattened cattle market in August. After bullish versions for this second semester for up to BRL 400/arroba in the Brazilian media, now there were trades at BRL 295 in Araçatuba at the end of last week. Selling bullish trends seems to have become a business sector in Brazil, and producers need to pay attention to this kind of analytical deviation.
Now, a set of information seeks to try to lead producers not to sell corn because prices can rise a lot until the end of the year. Well, we must remember that in 2021 we had the biggest second crop failure in history and there are many retentions even with great prices during the harvest. At the end of the year, the need to empty warehouses caused domestic prices to fall sharply. In 2022, we are reaping a record second crop and there is the same or even greater retention profile in the interior of states. The point is that we have two fundamental dates ahead:
* Sept/30: expiration of most of the growers’ debts and summer planting expenses;
* End of 2022 and early 2023: vacancy of warehouses for the entry of the record soybean crop predicted for next year.
However, the Brazilian media that sells upward trends point out that we have a failure in Europe, that the US is losing production, or, even worse, that China will import 10 to 20 mln tons from Brazil this year or the next. All this information is placed in the Brazilian media aimed to guide the decision of producers and ends up affecting themselves. The market is having good liquidity and good port prices, but sales are slow, and producers seem to ignore the moment due to a hypothesis of higher prices ahead. The point is that the second crop does not have the losses of 2021 and the soybean crop that is being designed has never been seen in Brazilian logistics. We remind you that in 2021, OTC price appraisal in cooperatives, besides the desperation to free up space, eliminated any chance of reaction in corn prices at the end of the year.
The great positive point of this year is that the high prices of the first semester in the international market and now the crop failure in Europe help Brazil to have an excellent flow of harvests via exports. There are 2 mln tons in June, 5.7 mln in July, and with a shipment queue for 8 mln tons in August. Almost 16 mln tons are heading for ports and avoiding bigger problems of internal logistics in warehouses. However, for a second crop of 82 mln tons in the Center-South plus 8 mln tons in Matopiba, what has been shipped so far does not guarantee an explosion in future prices. The point is that Brazil has until January to export. After that, the space will be taken over by a record soybean crop. So, concerns about the flow of the crop are still fundamental for the entire second half of 2022.
At this point, not taking advantage of domestic demand opportunities for the second half of the year, as well as for exports, is fundamental for producers. Perhaps, some decline in freight with the end of the harvest and some lows in diesel prices can help to improve the trading flow from September onwards. However, it should be noted that the premiums for Brazilian corn are high at the moment, the US crop is at full pre-harvest, the wheat bullish moment is gone, and Brazil still has a lot of corn to sell both for domestic demand and exports. The exchange rate in an election year is indeed a variable that is still present, but it can be solved with the election ending in the first round.
Brazilian imports have already reached 900 thousand tons this year. With Paraguay’s record second crop, even with some quality problems, there may still be a further 2 mln tons to this annual volume accumulated in Brazil.
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