Porto Alegre, August 1, 2023 – The Brazilian domestic market presented a favorable moment for prices. The international movement generated an improvement in prices at ports, good demand by exporters in the interior of states, and an opportunity for growers in the middle of the large 2023 crop. Growers seem more inclined to sell soybeans and sorghum and hold corn as much as possible in warehouses and silo bags. This retention on the eve of a US harvest, regardless of its size, does not seem healthy to us, considering that we could lose the best export opportunities and maintain a problematic surplus for the logistics of the 2024 crop. To justify such retention, interest rates would need to be low, and something new should emerge for the second half of the year to make the financial risk viable. Bets on a huge decline in US production, which not even the US market is pricing, and problems in the Black Sea create this erratic retention environment.
The two relevant events in July, the weather in the United States and the war in the Black Sea, continued to create an important psychological environment for the Brazilian domestic market. Even at full harvest, producers are trying to contain sales aiming at an external situation that could improve prices. The version of a production failure in the United States, which not even the local market is pricing at this moment, as well as the hypothesis of some additional movement of external highs due to the Black Sea, delay the commercialization, waiting for the recovery of prices.
However, last week was not favorable for this situation. The Ukrainian bias settled down, not giving strength even to wheat hikes. The rains started to increase in the US Midwest and neutralize the most problematic expectations for production in the US. As a result, prices on the CBOT fell back below USD 5.30/bushel, a level we believe is still “expensive” for a harvest period starting in September. So, retaining corn in Brazil to sell it at the height of the US harvest is not a good trade bias.
Two other situations that arose last week are related to Argentina’s decisions. The special dollar for corn exports has little influence on the international market in view of the volume limited by the loss of production in this crop. However, with the 2024 crop having this mechanism, the country’s sales could be accelerated in the international market. At the end of the week, Argentina imposed a toll tariff on barges that use the upper part of the Paraná River for navigation and loading of ships in Argentina’s own ports. The new tariff will impose another cost on Paraguayan corn and could halt sales of soybeans from the country to Argentina itself. In the case of corn, Paraguay could turn its commercialization definitively to the south of Brazil as a way to sell its record crop that is starting to be reaped.
The Brazilian market still has slow harvests as growers try to wait for the reduction of corn moisture and improve the result in dryers. Corn with high moisture has more discounts on dryers. So, they sell soybeans and sorghum. Sorghum is also overcrowding silos, as it cannot be fully absorbed by the market at this time. Sorghum prices are between BRL 30/35 across producing regions.
Corn even had good prices at ports at BRL 64/65/66 depending on the period of shipment. At the end of the week, prices had dropped to BRL 59 and 62 at ports and below BRL 55 on the railroad in Paraná. Mato Grosso stabilized at around BRL 40, Goiás at BRL 39/42, São Paulo at BRL 50/53 in the interior, and BRL 56/58 CIF, still expensive in comparison to the port, and Minas Gerais at BRL 50. In the south, the market is waiting for the advance of the crop harvest and some improvement in offers. In Matopiba, high prices and outside export parity in Bahia, at BRL 48/50, and in line with the port in Piauí and Maranhão, at BRL 45/47. Overall, the harvest pressures in August will still be present, especially if the CBOT surpasses USD 5.00/bushel. Ports are already full for August, with 8 mln tons of corn and the same volume of soybeans.
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