Porto Alegre, March 29, 2022 – Two very different weeks in the formation of domestic corn prices in Brazil. The export boom in Brazilian corn and immediate shipments scared the domestic market and may have involved 1.5/2 mln tons in this first half of the year. With the decision of the European Union, this export demand affected both premiums and the interest in buying Brazilian corn, at least for the high prices that had been charged. The exchange rate was only an additional variable last week, since if there had been the same external demand, the picture would have been very different from last week’s closing. The growers’ decision to sell remains very strong internally, they do not accept selling soybeans at low prices, and use corn for short-term liquidity. This condition brings down over-the-counter prices and the entire corn market.
The Brazilian market showed a strong flow of foreign purchases for immediate shipments two weeks ago. A reflection of Ukraine’s lack of compliance with contracts and the market’s attempt to get immediate supply alternatives. The buying wave seems to have taken close to 1.5/2 mln tons in exports between March and May, and the first ships are starting to be named, already with 575 thousand tons. In the same week, Spain asked the European Union for authorization to buy GM corn from the United States, until then banned due to environmental and health regulations. As soon as a serious problem arose for European supplies, environmental laws were put aside, even Germany must now authorize emergency planting in environmental reserve areas. The move led to less immediate demand for May/June for US corn and removed the strength of demand for Brazilian corn. Premiums quickly subsided, and prices at ports, which had reached BRL 114, closed last week at BRL 99/98 for May.
The exchange rate has, of course, its role in this process of lowering port prices. But if Europe continued looking for Brazilian corn as it had been, even with the real appreciation, Brazilian prices would not have this bearish strength. Just like one major factor triggered an unexpected short-term rally, other indicators caused strong short-term lows.
In both conditions, the highlight continues to be the attitude of Brazilian growers. The exchange rate has also held back soybean prices. However, growers are with the eternally bullish concept towards soybeans this year. They do not sell soybeans and believe in highs beyond those already registered. To keep soybeans in warehouses, they accelerate corn sales (given their cash needs), the purchases of inputs for the winter, and other commitments. In the case of southern Brazil, where the soybean crop was really bad, corn is being used for financial commitments, and selling pressure arises regardless of a tight supply situation.
The supply situation in 2022 is as tight as in 2021. However, the trading decisions of growers have been different, and this affects prices. It is not about the profile of stocks, but about the sales intention. We have a summer crop that should close at 21/22 mln tons in the Center-South; carryover stocks of 4/4.5 mln tons after demand adjustments at the end of 2021; more 400/500 thousand tons of corn from Paraguay and Argentina being imported by the country in the semester. Therefore, we have 27/28 mln tons in the Center-South to meet regional demand. With consumption close to 6 mln tons per month, we have the absorption of 12 mln tons in domestic demand in February and March. We have a further 6 mln a month in April, May and June. With some downward adjustment of demand from swine farming or even the industry, it is possible to balance supply. Besides, some second-crop plantations in Paraguay, western Paraná, and Mato Grosso will start being reaped in June, which may mitigate the impact of the end of the business year. The picture will remain tight, and there may be new price highs in the domestic market. Therefore, the growers’ selling decision is what determines this short-term trajectory of greater pressure on prices.
At this point, the good rains in March for the second crop of Paraguay, Mato Grosso do Sul, and Paraná eased some tensions regarding the end of planting and crop development. The planting is practically completed in most regions except for São Paulo and Minas Gerais. Weather conditions are still perfect in practically all second-crop regions so far, even with Matopiba rapidly advancing its planting.
Agência SAFRAS Latam
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