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Domestic corn market keeps prices firm despite the arrival of the summer crop

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Porto Alegre, January 21th, 2025 – Although Brazilian exports are losing momentum in new business, due to the seasonality of the domestic supply, the market has still sought to set domestic benchmarks in this port price environment. We still have a flow of sales of the 2024 corn crop with the start of sales of the new season in the south of the country, which is surprising at this time, given the tight supply scenario for the first half of the year and the space needed for the entry of the soybean crop. The domestic market seems to be finding space in exports, without having to pressure sales to meet domestic demand. Logistics will be the main issue starting this week, with the entry of another record soybean crop, with the high in fuel prices scheduled for February, and a more concentrated summer harvest. While the soybean crop is being reaped, the corn second crop begins to be planted in the country, with the same climate challenges as in the fall for confirming production. The resumption of rain in Argentina and Rio Grande do Sul improves the outlook for the final summer crop in South America.

On the eve of the government transition in the United States, markets took a defensive position last week. The dollar index remained stable at high levels, 109 points, showing a dollar still valued against other currencies. High yields on US treasuries continue to support a strong dollar in the international environment. A possible new strategy for financing US debt and an uncertain stance by the Fed on US interest rates may be justifying the overvaluation of the currency since September last year.

The next meeting of the Fed will take place on January 29. The bias is for interest rates to remain unchanged. In fact, the market does not expect changes in interest rates at least until July. The change in debt financing strategy by the new government through the National Treasury may determine whether there will be further appreciation of the dollar or a reversal as of this Tuesday.

In the international trade environment, the new government declared its intention to work more actively with China and not to move toward a structure of sanctions and tariffs in the coming months. Therefore, we can expect agreements that are beneficial to the United States in the agribusiness environment, contrary to what the agribusiness media has reported so far. The agreement for a truce in the Middle East and a possible truce in the Black Sea, including the lifting of sanctions imposed on Russia, could reposition trade in the region once again toward a war-free environment.

Some new conflicts may arise against Brazil. Brazil’s geopolitical positioning, restrictions on freedom of expression, alignment with Venezuela, and other indicators may keep limiting capital flows to Brazil. For this reason, the first Copom meeting with the new president of the Brazilian Central Bank will also be crucial. Brazil needs to maintain its attraction of capital and, to do so, it

needs to correct its arbitrage with foreign countries. To do so, the Selic rate needs to be confirmed with a 1% increase on the 29th and a bias of another 1% in March. The resumption of the balance of interest rates with the foreign exchange market could be a factor holding back the dollar, as long as the international financial community continues to accept investments in a country with a certain geopolitical bias.

The dollar slowed down last week, with the currency oscillating between BRL 6.00/6.10, and the real trying to find support at BRL 5.90. A decline in the dollar index abroad and the confirmation of the interest rate’s bullish bias by Copom could help the real to regain support. Failure to confirm an interest rate high, in the proportions outlined in December, will lead the real to a new speculative attack and more capital flight. The challenge will be to confirm a low or near-zero fiscal deficit in this first quarter, since the government’s main theoretical solution would be to monitor taxation. The fall of the Federal Revenue ordinance seems to have sharply upset the government’s economic area, perhaps due to the loss of a new source of potential tax revenue to balance the 2025 accounts. Therefore, in the short term, we continue with the real focusing on the dollar in the international environment and on the Copom decision on the 29th.

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