Porto Alegre, December 20, 2022 – La Nina years are always problematic in South America. This 22/23 crop has milder situations compared to the last two years, also with the presence of the phenomenon. However, it is not failing to reach the west of Rio Grande do Sul and Santa Catarina, as well as Argentina. At this point, due to the drought in these locations, we are preliminary cutting potential productivity in these locations and waiting for the weather and harvest in January to reset the local production. This is a scenario that reduces the supply for the first half of 2023 a little more, along with the very high Brazilian exports in 2022. We still have to wait for the closing of December shipments and January appointments to close the business year. But we are already surpassing 45 mln tons, and this significantly alters the scope of the domestic market for the first half of next year.
This December production review carried out by Safras & Mercado included some important changes. Initially, the 21/22 crop was increased, once again, due to the production of the North and Northeast regions, now with the completion of the harvest in the SeAlBa region (Sergipe, Alagoas, and northeastern Bahia). Production now totals close to 14 mln tons and reflects the good rising production also in Maranhão and Piauí. There were no changes in the other regions of the country, and the national production now totals 120.2 mln tons, a new record.
The 22/23 crop projections were also updated. Basically, corrections in the South region, where the summer crop is becoming more clearly defined. Paraná and Santa Catarina, in their largest growing area, continue to have excellent productivity potential and crops with a low risk of a major problem until the harvest. Some growth in productivity potential has been considered.
However, for the third consecutive year, La Nina affects the potential production of Rio Grande do Sul and Santa Catarina. The west side of the two states is being hampered by low rainfall in November and in the first half of December. Crops undergoing pollination and silking, some already in pod filling, are once again being affected in terms of their production potential. In some locations, there is the classic situation of cutting the crops in advance in an attempt to use them for silage or to advance the soybean planting schedule afterward. These crops did not record pollination and have no ears or are malformed. The abandonment of crops is a consequence of production frustration. The crop in Rio Grande do Sul was preliminary cut from 6.3 to 5.8 mln tons. However, in January, with the beginning of the harvest and the weather going on for a further thirty days, we will be able to assess whether the picture is of a loss proportional to that of 2022. Santa Catarina, in the far west, will still deserve a better assessment in January, but it must also record some losses.
In the other regions of the country, for the summer crop, there are no symptoms of serious or major problems that deserve a strong review of the production. They are later crops compared to the South and will still depend on the weather in January and February. The Brazilian summer crop, in the Center-South, is now estimated at 24.9 mln tons, even better than in recent years, and will need revisions in January and February due to the weather in the South. The 2023 second crop did not register changes in its projection, not least because we were already estimating moderate growth next year. Soybean replanting in some areas of Mato Grosso and delays in the start of planting in Goiás must contain the expansion of the planted area in the next second crop.
The 22/23 national crop is now forecast at 126.6 mln tons, still a new production record due to the higher projections for the North and Northeast. The evaluation of the summer crop in the South and the entire 2023 second crop ahead maintains the need for constant updating of Brazilian numbers.
For the national supply and demand picture, there is no worry about the second half of 2023, of course, if the second crop confirms the projection of a new record. However, with this combination of a new loss of production in Rio Grande do Sul with huge exports in 2022, we can state that it is fully bullish for the first half of 2023. In 2022, the consumer sector used the strategy of keeping low stocks in times of low supply, managed to mitigate the impacts of a tight supply, made purchases in Paraguay and Argentina during the period, and managed to reach the harvest of the second crop without serious problems. For the first half of 2023, perhaps this strategy may not be viable due to shorter carryover stocks, import difficulties, and still very strong domestic and international demand.
In addition to the crop failure in the South, we have high exports. We must understand that the Brazilian business year runs from February to January, therefore, some information sources will release export data from Brazil from January to December, but that does not match the Brazilian reality. Last week, ship appointments for December increased even further to almost 9 mln tons, with effective shipments for the month already reaching 3.7 mln tons. January starts with one mln tons in the initial schedule. We may already be exporting a portion of corn that would belong to domestic demand. Meanwhile, we see domestic consumers concerned over the summer harvests or Secex data, and forgetting to protect their short-term supply. This means that while the domestic consumer market prefers to look at regional warehouses still with corn available to growers, exports are absorbing the domestic market very aggressively.
Now, we have 45.5 mln tons scheduled, and attention is on the January appointments, which, in case of surprise, will also be withdrawing offers previously aimed at meeting domestic demand during the turn of the business year. As a result, prices could quite rise in the coming few weeks, perhaps even seeking alignment with the cost of imports. The low positioning of stocks in the consumer sector is allowing this space to exporters who have external demand to be met. We arrived in December with demand for shipments in February and March through the ports of Santos, Paranaguá, and Rio Grande, which may be prepared for soybean logistics in this period.
Another key point is domestic demand. Besides a good crush still in the ethanol sector and a large herd of pigs, the Brazilian chicken industry seems to have been directed to increase production believing in the effects of the avian flu in Europe and North America. Unfortunately, the avian flu will have little positive effect on Brazilian exports, and Europe already reflects this scenario. The bets that North America will buy Brazilian meat in significant volume are one more of the expectations generated in the sector in recent months. Meanwhile, the chicken industry decided to increase housing since August, even without having the proper demand in exports, and now it should confirm record housing in November, December and January, above 600 mln head/month.
For corn, there is more demand ahead and a price slowdown is not possible. Strong domestic demand, high exports draining stocks, import difficulties, and high costs, as well as the new production loss in Rio Grande do Sul are a sum of factors that cannot be seen as bearish for domestic prices in the first half of next year.
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