Porto Alegre, June 5, 2023 – While the international market of corn is still trying to define itself in view of the US climate, the Brazilian market of corn is trying to find export liquidity and encourage the flow of ships amid large shipments of soybeans, meal, and sugar. Believing in easy logistics for shipping corn until September looks like a pure lack of experience or exaggerated optimism. Anyway, while the second crop of cornshows some losses in Minas Gerais, this week’s rains should result in excellent production in Paraná, Mato Grosso do Sul, and Paraná. As there is no forecast of frosts ahead, the market needs to align more quickly with the export channel. Strong harvest flow and spaces in logistics are a combination that will challenge the Brazilian market once again in this record crop of corn.
The record soybean output in 2023 in Brazil and the delay in commercialization by producers brought important variables to the national market in this first semester. Soybean premiums were too impacted by this combination of concentrated harvest, few forward sales by producers, and the need for storage space. Thus, premiums reached -200 cents/bushel against Chicago, only reached before at critical moments of global oversupply. This is not the case in 2023, with the biggest crop failure in history in Argentina and low stocks in the United States. Even so, Brazilian selling pressure set a decline in premiums far beyond the CBOT lows.
The hope that soybean prices would remain high, even with a record Brazilian crop of corn, was the factor that most harmed the domestic soybean market this year. This vision is important to evaluate the 2023 second-crop corn. Many theories are beginning to be created in the internal market environment. The first is that the US crop will fail, and with that prices in Brazil would be saved, which is a version still far from the real hypothesis. The second is that prices would rise at the harvest of a record crop of 98 mln tons, a weaker hypothesis compared to the first one. The third is that Brazil will export 55 mln tons, and with that ending stocks will fall and prices will rise. There is a huge effort to export 55 mln tons, which is possible, but we need demand abroad and will conflict with a record US crop.
The latest version is that the government will hold PEP and Pepro auctions to guarantee regional minimum prices, and then the domestic market will rise. At this point, there is also a lack of evaluation experience on the part of some market agents. When the Brazilian second crop reached 30/40 mln tons fifteen years ago, with a surplus of 15/20 mln tons, any government interference was more practical and easier. Besides, prices were much lower, and with some resources the government could make a good impact. Currently, production hits 98 mln tons, with a surplus of 50 mln tons. Prices are far from the past. So, with little money, the government has little interference in the market. It will share little among a few, and the tool of subsidizing exports will have little practical effect, without guaranteeing producers the required minimum price. In summary, the government does not have enough budget to generate a mechanism that can leverage domestic prices, at least to the levels of regional minimum prices, and correct the market profile in this second semester.
We believe that the decision to carry out this type of subsidy auction could have an even more negative effect on international prices. As we pointed out, the Brazilian corn market is already mature enough to advance on its own trade flow and boost exports without relying on extraordinary support from the government. Government actions can now delay sales decisions by producers, delay the Brazilian shipment window, conflict with the US crop, and aggravate the logistics problem with the delay in selling decisions and export shipments. Letting the market adjust naturally seems the right decision this year, not least because any government action will not guarantee the minimum price to the largest part of the market.
With this assessment, the market will try to find spaces in ports in the midst of the strong shipment of soybeans, soymeal, and sugar for the next three months. The surprise is coming from the port of Santarém, which, in June, already had 600,000 tons scheduled for corn shipments. However, it is the only one with a better volume. The others have isolated nominations and are waiting for the space left by soybeans.
Of course, exports will progress normally, and the big difference is that the international environment is different this year. In 2022 the CBOT was at USD 7/8.0 a bushel, and this year it is at USD 5.00. There is space left by Ukraine and Argentina in the world supply. However, we note that importers are in no hurry to guarantee huge short-term volumes with a focus on larger crops ahead.
Thus, this week’s export business begins to advance because the interior is aligning with reality. Most deals were priced between BRL 62.50 and 64.50 with shipments from July to September. Mato Grosso between BRL 34 and 40 depending on withdrawal and payment date. Goiás between BRL 38 and 42 for the second crop. Paraná with most of the business on the railroad at BRL 51/53 for September, with corn from Mato Grosso do Sul. Tocantins, Maranhão, and Piauí, second crop at BRL 42/44 from July to September. Triângulo Mineiro at BRL 50/51 at the Araguari terminal. The issue is that business volume is not large, there are still many producers waiting for something in the market or the government to decide to move forward with sales. So, as the harvest progresses, the situation could even complicate the logistic flow from July. The positive side is that domestic demand does not have long stocks and will also participate in the absorption of harvests in July. Any upward movement from now on must be seen by the Brazilian market as a selling opportunity.
In addition, the rains at the turn of the month in Paraguay, Paraná, São Paulo, Mato Grosso do Sul and even parts of the southwest of Goiás are bringing a consolidation of productivity for the second crop in this region. Of course, the risk of frost still remains, although there is still no estimate for June. Another point is eastern Goiás, northern Minas Gerais, and southern Tocantins, where there are second-crop losses. Considering the weight of supply in both regions, we must reflect that in twenty days the selling pressure in Paraná and Mato Grosso do Sul will likely be a little stronger.
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