Porto Alegre, July 25, 2023 – For the domestic market of corn, the two external situations brought Brazil a great opportunity to boost demand via exports. Not just because of the difficulties that Ukraine may encounter in selling its crop, having to defend itself in a war environment, but also because of the risk of an even more pronounced US crop failure. The external rise led to an improvement in prices at ports and may be the alternative for a better flow of production throughout the semester. For consumers in the domestic market, the advance of harvests points to buying opportunities as well, even if in this upward movement many producers decided to hold corn and not accelerate sales.
The moment, as we analyzed above, is delicate for the US crop due to high temperaturas in the coming few days in a critical phase of production. The rising and volatile wheat, with the new fact in the Black Sea, is reflected in corn. Even if analysts point out that the export corridor was only beneficial to Ukraine at the beginning of the war, the commercial closure of the Black Sea flow is a new episode. So, the two variables together lead to expectations and volatility on the CBOT.
The US crop should reach 80% or more in the pollination phase this week, and a portion must already start graining. The harvest occurs in September. Well, until then we have the following indicators:
– Weather situation through the end of August in the Midwest;
– USDA report on August 11, which has the characteristic of bringing a field assessment of productivity;
– Crop tours in the second half of August;
– Advancement of the Brazilian harvest.
In this environment, it is clear that we will have a speculative and volatile scenario until the end of August, at least. The climate, at this point in the international market, is fundamental for CBOT prices regardless of Ukraine. This situation led prices in Brazilian ports to BRL 65/66/67 per bag last week. If the rains do not return or the information collected on the real situation of crops does not bring favorable information, new rallies may occur again until August. We should only remember that deeper production cuts may be associated with demand projection cuts by USDA.
In Brazil, prices improved significantly last week, but closed the period following the CBOT slowdown. The market is now at an impasse. Producers believe there is an opportunity for highs, even without room to save the second crop or having immediate liquidity for it. On the other hand, traders are in no hurry to buy, keeping indications unchanged for long withdrawals even at slightly better prices. So, there are difficulties for producers to interpret the opportunity for better selling prices and the logistic difficulty with much higher prices with the size of the Brazilian second crop.
We must understand that the Brazilian harvest is 44% complete, with Mato Grosso already converging toward the final half. Mato Grosso, with 47 mln tons reaped and only 5/6 mln shipped in June and July via exports, besides probable 5.5 mln tons in August, still has more than 30 mln tons within the state. Even if we have some volume going out to other states and the ethanol industry absorbing their consumption volumes, the 2023 second crop logistics saga is still far from being over.
The harvest has advanced with high productivity for the second crop in Mato Grosso do Sul, Goiás, Paraná, São Paulo, and Minas Gerais, besides all the sorghum already available on the market. Therefore, we have a situation characteristic of this moment:
– Less liquidity in trading companies for immediate shipment and payment, leading producers and the market to have space to allocate corn until shipment over the semester;
– Owing to the need for cash and space in this season, there are sales pressures for the domestic market and buying opportunities for regional consumers;
– Owing to the possibility of early spring rains in South America and a normal soybean planting, any exaggerated retention of corn could become selling pressure at the end of the year to free up space.
For now, exports have a very healthy volume of appointments, with more than 15 mln tons committed and nearly 7 mln tons for July. August has 4 mln tons named so far. With the recent hikes in Chicago, undoubtedly, good volumes were traded, but with longer shipments, after September, and can help Brazil to seek the new export record of nearly 50 mln tons.
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