Porto Alegre, January 24, 2023 – For a market that has just reaped a record harvest and did not indicate any immediate need for imports, except in the south of the country, China surprised with the volume of corn purchased in Brazil in December. Shipments surpassed 1 mln tons in the month and there may still be some residual shipments in January. Brazil shipped 6.4 mln tons in December and now has 5.3 mln on the January schedule. These data reveal the depletion of the Brazilian supply of the old crop, put Brazilian stocks at the lowest level since 2016, accentuate the dependence of supply solely on corn from the new crop, and suggest price increases as soon as soybeans take over
Brazilian logistics, in this first semester. This without touching on the issue of production loss in Rio Grande do Sul, a situation that accentuates the supply adjustment until July, when the 2023 second crop hits the market.
The Brazilian summer crop begins to be reaped in Rio Grande do Sul and must last at least until March. Productivity in the northwest and west of the state ranges from total loss to 70/80 bags per hectare. Some locations closer to the border with Santa Catarina are getting better yields. Last week, the rains were a little better in the central region up to the border with Santa Catarina, which must help later corn and the highest locations, but there are no more changes in the west. Production cuts will be inevitable in the new numbers.
In other regions of the country, there are no production problems, but the harvest is delayed and perhaps only happens after the soybean harvest due to logistics. The harvest may advance in February in southwestern Paraná.
In fact, this is the concept for the first half of 2023: expecting the harvest to occur to meet regional markets without supply stress. And why this profile of supply adjustment again for the first semester? The following points are fundamental:
* Lack of concern on the part of the consumer sector over the high flow of exports;
* Low position of stocks in the consumer sector;
* Increase in chicken housing not in line with the reality of the international and domestic markets;
* High standard of consumption in the swine and ethanol segments;
Exports much higher than expected, with 47/48 million tons expected at the end of the business year;
* Exports entering the new crop, also through Rio Grande do Sul;
Carryover stocks at the lowest levels since 2016;
* Regional harvests may occur only after the soybean harvest in most states;
* Extremely high import cost, close to BRL 120 CIF factory through drawback. Unavailability of Argentine corn before April in larger volumes;
* The consumer sector’s strategy out of step with reality about the first half of 2023.
Brazilian demand is at high levels in the ethanol, pig, and chicken sectors. Unfortunately, chicken farming has taken the wrong position regarding the increase in production since August 2022, supported by some magical vision that the avian flu in Europe and the United States could cause an avalanche of demand for Brazilian chicken. This hypothesis was remote, demand did not happen, but the sector now has record housing and profitability losses due to the price decline. Seasonally, this is an inverted cycle, that is, high chicken production with upward movement in corn prices. The sector then starts to blame corn for its strategy errors. Besides not competing with exports, it allowed a strategy of low corn stocks and, now, the contrast is present. Holding prices in São Paulo and trying to control prices on the B3 is not a valid strategy when it comes to internal supply.
The importation alternative is still distant, either with Argentine or US corn. Costs are very high and today are close to BRL 120 CIF factory. This means that the internal market will have to be supplied solely with the corn available internally and from the harvest that is coming ahead. As most consumers only have corn stocks for the short term, this competition for new corn will make a difference in prices from now on. The 2022 strategy of trying to contain this formation of stocks to stretch available supply until the harvest of the second crop was only possible with imports from Argentina in the first semester. Even so, a corn bag exceeded BRL 100 CIF in the domestic market. So, the valid strategy was to import. Will there be room to import corn from Argentina after April?
While imports do not happen, the market will keep trying to contain prices in São Paulo to inhibit expectations on the B3 and make producers in the interior decide to sell corn rather than hold it or ask for ever-rising prices. Without offers, it seems that this version will not work in 2023.
At the same time that consumers in the domestic market are ignoring the scenario for the first semester, big sellers are looking for space to sell their large lots and have found this liquidity in exporters. In this way, China surprisingly shipped 1.0 mln tons in December, and the January line-up is at 5.3 mln tons. Brazilian exports in 2022 could close between 47 and 48 mln tons. Ignoring this environment of depletion of internal stocks is the central point for the rise in prices in the first semester. Unfortunately, the issue of supply will not be solved by blaming corn as responsible for the worse results in the meat sector.
Brazil has already imported 2.47 mln tons in the 2022 business year and could approach 2.8 mln tons. There are still some small volumes being contracted in Paraguay, but for a limited time due to the arrival of the soybean crop. Brazil has 1.5 mln tons in the export shipment queue for February. Would washout be the supply solution again? For that, prices would need to rise internally.
Internal commercialization keeps counting on some harvests in Rio Grande do Sul, whatever is put for sale is quickly absorbed, but consumers are trying to lower prices in the west to less than BRL 90. We point out that, besides the crop failure, there are exporters in Rio Grande bidding BRL 94/95 for February/March, and the attempt to lower prices in the state leads the market to export. In other locations, old-crop corn is being finished while the market is getting ready for the big soybean harvest. When that happens, the corn market will change radically, regardless of price indicators in São Paulo or price control on the B3.
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