Brazilian market pays attention to the climate and focuses on the start of exports of the 2024 crop of corn

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Porto Alegre, May 9, 2024 – The catastrophe that shook Rio Grande do Sul will affect all segments of the local economy. The meat and rice sectors seem to be segments most affected by the situation due to the impediment of traffic to farms, flow of animals, feeding, as well as damage to rice crops. In the case of soybeans, some losses will occur because 76% of the crops were reaped and a portion was still under the effect of excessive rain in recent days. The corn harvest was practically complete, with a small portion to be reaped will not change the market context. Of course, the difficulty in carrying goods due through damaged roads and warehouses could change the regional environment in the short term. On the other hand, there is a new drought in May, which affects the region from the north of Paraguay to Minas Gerais. Is there any possibility of any additional crop losses with this situation? It is clear that many crops are in the decisive phase of production and will have the effects of losing potential.

Market sensitivity is clearly high in 2024. After coming close to correcting the international price curve, some commodities seek to stick to certain information as potential support to an upward movement or inhibition of declines. It should be noted that, despite a strong profile of planted area in the United States, with a record initial planting pace and good weather conditions, soybean prices are still far from their normal average, below USD 10/bushel, and are now trying to rediscover levels above USD 12/bushel. The preponderant fact, in this case, is not a problematic situation in Argentina, but a situation of excessive rainfall in Rio Grande do Sul. On the other hand, corn, with a strong cut in area in the United States and greater risk for the situation of supply in case of a weather issue, cannot find upside support due to good local stocks.

In this environment, any variable regarding the US crop will be extremely sensitive on the CBOT, as is seasonal and traditional. So the biggest point for the corn market right now is the weather in the United States. The historic climatic episode that occurred in recent days in Rio Grande do Sul is extremely relevant for the local economy and with segments of agribusiness being strongly affected. The first, without a doubt, is the rice crop, which could accentuate the decrease in the national supply. Then, the logistics of distributing animal feedstuff and flow in the meat sector.

For corn, the local situation is expected to become more complicated due to logistic difficulties and damage to regional warehouses in the center-east of the state. The volume of corn to be reaped was too small to generate a traumatic regional supply environment. The question will really be the recovery time for regional logistics to resume the flow of goods.

Besides this issue in Rio Grande do Sul, we also have a situation of attention to the corn market. The renewed drought in the region involving the north of Paraguay, the center-south region of Mato Grosso do Sul, north of Paraná, São Paulo, and Minas Gerais affects a portion of crops that have already suffered from the March drought or that are now entering the decisive phase for productivity, that is, pollination and silking. The contrast with Rio Grande do Sul is the resumption of a strong drought and very high temperatures at the beginning of May. The situation has nothing to do with La Nina, which is not present yet.

As we have assessed in our editions, Goiás, Mato Grosso, Matopiba, west and southwest of Paraná and part of south of São Paulo have significantly reduced risks in the second crop at the moment due to the earlier phase of the crop this year. The current cut in rainfall will not change the production profile in these regions. Naturally, any greater loss in the region that still poses risks to crops will end up, at some point, changing the local environment of expectations and prices. The challenge for these locations with greater losses, such as Paraná, Mato Grosso do Sul, and São Paulo, is to limit exports, as, even with losses, the major regulatory factor will be the export flow. Without exports in these states, the situation will end the year in balance. With strong exports, a larger adjustment to supply may occur.

Therefore, as Brazil is a corn exporting country, production losses primarily affect the volume that is possible to export within the business year. As we have already shown, the export potential is 45 mln tons this business year, based on current supply and demand data. We must remember that there is a large production of sorghum ahead, which will remove part of the demand for corn, evidence that is poorly calculated by consultancy companies of lesser relevance in the national market. When focusing only on the risk of production losses of the second crop and not the general picture, the chance of making a wrong diagnosis for the market is quite evident.

Exports started in recent days in Brazil, as we have shown in our reports. The first ships began to appear in Santarém (PA) and Paranaguá (PR). The initial volumes are still discreet to cause any movement in the internal environment, however, many internal numbers in Brazil try to lead the market to believe in exports of 30/35 mln tons this year. Indeed, the first half of the year has not been good for national exports, as the low shipping environment will not change until July. However, Argentina will not export every month of the year, and the United States will still depend on a normal crop. Opportunities for exports of nearly 40 mln tons this year, or more if there is any international price surprise, remain present. The central point for sales comes down to the need of trading companies to fulfill their railway contracts and the space hired in ports, space that will not be covered with soybeans this year.

Therefore, we must understand that regardless of the size of the 2024 corn second crop, be it at 86 or 80 mln tons, the big factor is exports. Considering that Mato Grosso accounts for the largest portion of national corn shipments, the market should pay greater attention to the sales flow in this state and the domestic market should pay attention to the local harvest and trading cycle. It is not enough to define the losses in Mato Grosso do Sul and Paraná as a reference for the market ahead if Mato Grosso allocates more corn to the domestic market instead of exports, as is already happening. And this is the sensitive point of the internal market.

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