Domestic market of corn weakens with port price configuration

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corn

Porto Alegre, March 4, 2024 – The Brazilian domestic market is also feeling the impact of the global situation of corn. No matter how much information sources try to bring lower crop numbers and show a possible critical picture of internal supply, the fact is that offers appear, growers are selling, and prices do not react. There are two complicated situations at the moment for corn: there is no export demand for Brazilian corn at the moment, and the import cost today is relatively low in case of any domestic surge. So, without competition with exports, the domestic market moves toward domestic demand, which tends to follow the curve of lower export prices for the purchase of corn. If the country can export 40/45 mln tons per year, the main focus is on exports.

The Brazilian domestic market showed greater sales pressure last week. Without space to allocate volumes to ports, due to the absence of exports, the offers that arise need to be converted to domestic consumers. The higher the selling pressure, the higher the proportion on the downward curve.

In 2023, Brazil exported nearly 5.5 mln tons between February and June. This year, a few shipments remain in Santarém, and the first shipment via Rio Grande is scheduled for March. However, that is very little to generate an internal competitive environment to promote greater movement in regional prices. Prices between BRL 56/58 for shipment in March and April may not get available offers, as the domestic market pays better than that.

In the South of Brazil, without conditions to make exports viable, traders and cooperatives look for larger industries and buyers in general. The issue is that growers have made just a few OTC deals, and there is a need for space to receive soybeans from April onward. Then, forward business with unsettled prices has advanced both for consumers in Rio Grande do Sul and Santa Catarina. Paraná has prices of BRL 54/56 from the west to the south of the state, where there are summer-crop offers. Falling prices show that the summer crop is much better than 3 mln tons this year. In general, the lack of competition with exports limits the space for sellers in the regional market, and supply ends up bringing prices down, also because growers usually hold soybeans rather than corn.

In the Southeast, the situation is even more difficult considering that Santos practically has no possibility of corn shipments until June. Therefore, harvests and sales by growers only find space among consumers in the domestic market. As there is a desire not to sell soybeans at current prices, and the summer harvest is advancing, the pressure to sell corn ends up coming seasonally. São Paulo has plenty of corn purchased for March and April and has relatively well-positioned consumers. Regional harvests serve these same consumers in small batches without depending so much on other states. So, prices fell below BRL 60 in the interior last week, and there is no major recovery trend, especially because we are at full harvest. In Minas Gerais, in turn, the weather allowed for the initial harvest to advance in the south of the state, and prices began to decline. Prices are at BRL 57/60 in the south of the state and BRL 57/58 in Triangulo Mineiro. The state still has the entire summer crop to reap, and this will last until May.

In the Midwest, there is still plenty of corn from the 2023 second crop in the grower’s hands, which is maintaining regional offers above BRL 50 in Mato Grosso do Sul and Goiás. In Mato Grosso, weak export demand to meet exports in Santarém, at around BRL 40 on Highway 163, and industries between BRL 37 and 42 depending on region. Small volumes for feedlots.

In the Matopiba region, this availability of old-crop corn is also impacting the local market. Offers of sorghum at BRL 45 and corn at BRL 60/62 in Matopiba show the growers’ interest in selling, perhaps in an attempt to receive soybeans.

The 2024 second crop will have a different characteristic this year. We have a large portion of the second crop in Mato Grosso, close to 60% of the area, which will have the harvest starting at the end of May and June. Goiás, nearly 30/35% of the area. However, we will have a large volume of production to reap within the normal cycle, that is, July, August and September, referring to the plantings that took place in the second half of February and will still take place in March. Many areas in the east of Goiás and north of Minas Gerais will have heavy planting of sorghum instead of second-crop corn due to the delay in the soybean harvest. Matopiba will see some acreage reduction, but, for example, Tocantins already suggests that the area should not be too far from last year due to the good rain that is occurring.

The question, therefore, comes down to the weather in March/April and May for this later second crop and the port accounting. Port levels for the second crop were BRL 53/54/55 a bag for June to September. These prices would not allow Mato Grosso indications above BRL 30/bag for the second crop, BRL 40 in Goiás, BRL 40 in Mato Grosso do Sul, BRL 45 in Paraná, and the interior of São Paulo. In other words, if port prices do not improve in the coming few weeks, these will be the prices to be charged for the 2024 second crop.

And this was the correction seen in futures prices last week. The levels that were being charged in futures prices on B3 were almost bringing an illusion to the second crop levels. With September at BRL 64 against the port price of BRL 54, there is a meaningless premium of BRL 10. Besides, some theories about corn shortage and additional derivations begin to fall out of scope. In fact, Brazil will have 40/45 mln tons for exports in 2024 and will need to flow this supply to free space for the 2025 soybean crop. Convergence toward the port price is inevitable, regardless of the level it may be at. To boost port prices, we will need a discreet area to be planted in the USA and/or some weather problem in July/August.

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