Porto Alegre, June 28, 2021 – While we still have full attention to the US crop, the Brazilian market is entering the pre-harvest of the second crop. As we have pointed out, despite effective production losses this year, 62 mln tons are arriving in the Brazilian market for the next ninety days and, of course, this exerts some sales pressure on the domestic market and resets levels. In any market, prices do not stabilize during a downtrend, let alone during an uptrend. Some correction caused by the harvest is seasonal and natural.
If the US crop is yet to be defined and has still sixty days of weather ahead, Brazil’s 2021 second crop begins to be reaped. Mato Grosso and a few farms in Goiás and far western Paraná have begun the harvest. The first productivity levels cannot reflect much of the general picture, since the crops were planted earlier and may have obtained better results. However, the growers in these areas were expecting something around 100 bags per hectare, but yield came below this level, at 85 to 95 bags. The big problem has been the low specific weight of grains, even in plantations where ears had good filling. The projection is that average productivity must decline further ahead.
Prices are dropping across the Center-South region. However, the volume of business has not been high enough to either accelerate this price decline or show that producers are really willing to accept sharp lows. Prices were quite high and reflecting a tight supply in the first half of the year. Now, 62 mln tons are reaching the market in ninety days. It seems natural that some adjustment in domestic prices takes place. Of course, if there were a normal second crop with 80/84 mln tons, the pressure on prices would be more accelerated.
So, June establishes this almost natural pre-harvest pressure with the second crop. Consumers take the opportunity to diminish stocks, and growers, still holding corn from the old crop, liquidate a good part of their supply. Downward pressures are accelerated when the references for price formation begin to change. In the first half of the year, import costs for Argentine corn hit BRL 103/105/106 CIF industry. Paraguay even sold second crop corn for August and September deliveries at USD 320 CIF western Santa Catarina.
With the lows in the international market and strong appreciation of the real, this level dropped to BRL 87/90 CIF Brazilian industry, via drawback. In other words, it is now cheaper to import Argentine and Paraguayan corn than it was 30 days ago. As the high levels of BRL 103/106 in imports helped the domestic market to increase prices, the current lower levels help to pressure the domestic market in this pre-harvest.
Some ask about the production losses of the second crop. Well, they are still present, nothing has changed, and things even worsened in Minas Gerais and Goiás. However, as we have pointed out, there is some volume to enter the domestic market in the coming few weeks. Can prices rise again in the second semester after the harvest of the second crop? Yes, they can, depending on some factors:
– The volume of exports in the second semester;
– The volume of wheat used in feedstuff with the arrival of the Brazilian crop in the second semester;
– The volume of imports of Paraguayan corn;
– The final numbers of the US crop.
Wheat has a winter crop in southern Brazil and, depending on the price ratio with corn, could be widely used in swine production in the coming few months. Paraguayan corn has great production potential this year, a little over 5 mln tons, and its exports for Brazil could reach 2 to 3 mln tons.
So, the profile of exports in this second semester will be the determining point for evaluating stocks for 2022 or higher-than-expected surpluses. It is no use just looking at the losses of the second crop, as 62 mln tons are a volume well above domestic consumption in the second half of the year. Without exports, there will be corn surpluses in the domestic market. With high exports, the picture becomes critical. Therefore, monthly shipments above 4 mln tons this year may indicate excess exports. A shipment far below this level could indicate weak exports and additional domestic surpluses. And additional leftovers are not conducive to prolonged price highs. July starts with export commitments near 500 thousand tons at Brazilian ports. In 2020, the volume was 4 mln tons. The commitments will increase in the coming few days, and this slower pace was already expected due to the delayed planting. However, the following months will need to show that exports will still be strong in a year of production losses.
Agência SAFRAS Latam
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