Porto Alegre, April 5, 2022 – The projection of another record second crop for Brazil should be considered normal in view of what growers are confirming as planting in several areas from Paraná to Maranhão. Of course, there is the uncertain climate ahead. However, with potential surpluses of up to 40 mln tons in the second half of the year, Brazil will need to align itself with exports. The domestic market seems to have started to promote this alignment early because of favorable weather conditions for the second crop and seek liquidity for volumes that domestic demand may not have from June. The biggest risk is that growers will keep wanting to sell corn and retain expensive soybeans in warehouses, a factor that will require liquidity from cooperatives and traders to sell large volumes.
What is the biggest internal concern with a record second crop? Space and liquidity. This situation is complicated when we see growers using corn from the summer crop and the little remaining 2021 stocks to pay short-term debts and keep expensive soybeans of BRL 200/bag in warehouses, which are now in the past of prices. This decision helps the corn market to bring prices down but did not help soybeans to sustain prices. So, the outstanding debts on March 31 ended up having the great movement of corn sales as the driver of this process. Now, with the more aggressive low in soybeans, perhaps the growers’ decision will continue to be selling corn and wheat from their warehouses to keep holding soybeans in the hope that prices will restart rising.
At the same time, Brazil lost short-term export demand. Europe moved to purchases in the United States, other importers stocked up for the semester, and premiums plummeted. With the dollar falling to BRL 4.70 last week, the port was unable to adjust better prices for domestic market liquidation. The port maintained the levels of BRL 92 to 94 last week for April/May and BRL 87/88 for July. Of course, cooperatives and traders continue to base themselves on these lower port levels, and domestic consumers also seek to bring prices to these levels, even without having long stocks until the second crop.
The search for liquidity and space for the corn’s second crop will be the challenge from June onward, especially if growers continue to retain so many soybeans in warehouses. The international focus is now on the climate in the United States. Whether Ukraine will plant or not will have little global influence. But a full US crop, even with smaller acreage, and Brazilian exports of 40 mln tons make up for the lack of Ukraine exports. The attention, therefore, is on the US climate and the export demand for Brazilian corn. If growers decide to finance the planting of the 2022/23 soybean summer crop with the sales of second-crop corn, the pressures on corn sales will be significant.
Agência SAFRAS Latam
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