Porto Alegre, February 27, 2024 – Brazilian corn in 2023 has become “cheap” among exporters. Ukraine with flow problems in the face of war. The United States still in the transition to replenish stocks. Argentina with historic production losses. Brazil with a record crop. China sought not to depend on US purchases, and its annual import demand ended up being concentrated in Brazil. There is plenty of internal discussion in Brazil this year or the attempt to generate a bullish environment, which only involves the Brazilian second crop context. However, we should note that Mato Grosso is a major exporter, and its lower production will only affect exports and not the domestic market. The main reason for this situation in 2024 is external prices. Prices on the Chicago Board of Trade (CBOT) reached USD 4.00/bushel last week, the lowest level since the start of the pandemic, given the high US stocks and the need to resume exports as a way to dispose of these stocks. Not even the bias toward the cut in the 2024 US acreage has been able to contain this downward movement. If Brazil does not have enough price and volume to meet all global demand, could this flow shift to Argentina and the United States? It seems to be quite logical and, in fact, this is what is already happening with export demand leaving Brazil and heading toward the record Argentine crop. Therefore, when talking about a corn shortage in Brazil, it is important to evaluate that the global supply is quite different from the 2023 situation.
The credit crunch for the US real estate sector could be the new variable to be attributed to the interest rate cut bias in 2024 by the Fed. January data showed a recovery in the sale of new homes in the United States, which could be considered seasonally normal, after a sharp drop in December. Sales of used homes have slowed down. If the real estate sector starts to lose strength, we could see the beginning of a pre-recessionary situation as some other indicators begin to suggest historical limits. An increase in fuel stocks suggests inflationary adjustment in the future.
Positive data on Europe helped to hold expectations in a week with few relevant indicators in the international market. Despite current easing policies, data from the National Bureau of Statistics on 70 cities suggest that weighted average property prices fell further in January. So, Europe may be preparing to start reducing interest rates while the financial market waits for the Fed to analyze the indicators and decide on interest rates.
The dollar index was stable last week, which allowed for less volatility for other currencies. Employment data at the end of the month should once again bring volatility and expectations to markets.
Another point is the Brazilian market. The exchange rate closed the week testing the level of BRL 5.00/dollar again. The internal political movement is disastrous for the pace of the economy, mainly because it affects public accounts and decisions on interest rates. If the United States cuts interest rates sooner, this tends to be positive for the international flow of capital, and Brazil ends up benefiting. This will only happen if the public deficit affects international credit ratings and/or Brazil’s Central Bank starts to exaggeratedly reduce interest rates before the US does it. The additional risk is an outflow of capital from investors due to the diplomatic crisis created by Brazil itself with the international financial community. Brazil’s “luck” is that we have good reserves and there is still no attack on the real.
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