Porto Alegre, April 12, 2021 – The supply problems of the first semester are becoming more evident in the Brazilian market every week. The market fundamentals seem increasingly evident and realistic with the most credible figures in the country, as we have pointed out in our issues since the second half of 2020. The consumer sector sought several alternatives to contain bullish expectations, but it does not seem to have drawn strategies to protect itself from price highs and/or scarcity. Now imports may be needed to contain pressure on costs, but the exchange rate, import rules, and high prices also in the international market limit this alternative.
The corn market confirms a difficult supply situation in the first half of 2021 in practically the whole country. Mato Grosso was already expected to cope with a critical supply situation and operates with prices above BRL 70, a high level for a region that has always been regarded as the one with the cheapest corn in Brazil. The reason for this high in the state does not stem from the ethanol industry, far from it, but from the flow of exports, which always absorbs the state’s surpluses.
Now, the price situation in the South and Southeast regions must not be considered a surprise. Perhaps the price level between BRL 95/100 a bag last week in most regions and BRL 85 in Minas Gerais and Goiás can be considered surprising. However, we have called the attention of the market about that point in recent months. The consumer sector tried to break some barriers such as the extra-Mercosur import tariff, to facilitate the imports of transgenic corn, even of US origin, and also to eliminate PIS/Cofins in this import process, which really makes corn costs too expensive. However, the Brazilian federal inspection is still requiring post-landing checks on imported corn and restraints to the import process. If any unauthorized GM corn is identified in Brazil, it must be discarded. With small volumes, this can undoubtedly be possible. However, with imports of 1 to 3 million tons, that would be impractical.
Thus, we have assessed the issue of imports and their cost as a basis for domestic prices. Import costs have not moved much far from the level of BRL 85/95 CIF port in Brazil. Even with some declines in Argentina, the rise in international freight has canceled out corn lows. Besides, there are internal expenses and, in this case, the CIF cost for consumers closer to ports is around BRL 100 to 105 a bag. Thus, even though it seems expensive in the domestic market, Brazilian corn is still more affordable compared to imported corn. Therefore, domestic prices are staying around BRL 100.
The additional issue concerns the prolongation of the 2021 off-season. The harvest of the second crop usually begins in June and advances into July/August. With the delay in planting, there will be some harvest in June and July, but it may not meet all the internal demand that will arrive in July with a complicated supply. The harvest of this year’s second crop will be really concentrated in August and September. So, in case the off-season is prolonged by more 30 to 40 days, it will aggravate the need for a corn supply from the summer crop and/or with stocks from 2020. These stocks from 2020 were consumed in this first quarter of 2021, and now what remains is corn from the summer crop, which has been highly demanded, as well as the early second-crop plantations to be reaped in June and July.
However, April brought a new factor. The sudden decrease in the rain in second-crop plantations. The crops planted in February are entering pollination and silking stages, and less rain can now determine potential productivity losses in this belt that runs from Paraguay to Minas Gerais. Crops planted in March are under development and will be pollinated in May, and the crops planted later only in June. This April water stress could bring losses in areas even before the pollination start. The point is that the rain is only projected from May. Some areas in northern Paraná and Mato Grosso do Sul were unable to be planted until early April due to the lack of rain.
This is an additional factor for domestic corn prices. The weather risk for the second crop brings us an additional concern in the production environment and generates tension about the selling decisions by growers.
Agência SAFRAS Latam
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