Porto Alegre, January 8, 2024 – The turn of the year and the beginning of 2024 are marking a change in the rainy environment in Brazil. Fewer excesses in the south and the resumption of better occurrences in the center-north. For soybeans in Mato Grosso and part of Goiás, the rain arrived late. For the 2024 corn second crop, at the right time. The sooner-than-normal soybean harvest and now the improving soil moisture may give a final motivation for decisions to plant second-crop crops, despite the presence of an already inevitable area cut. Meanwhile, the Brazilian market has a very firm price situation in the face of regional downsizing due to the export pace, accelerated by the lack of stock control on the part of the domestic consumer market. The focus now is on the arrival of the new crop, starting in Rio Grande do Sul and, from February, in the Southeast region and Paraná. This price reaction caused by the retention of offers by growers and the lack of stocks among consumers is a situation that will only be solved with the arrival of the 2024 second crop. Until then, the climate environment regarding the second crop will still weigh on trading decisions and expectations toward production.
The meeting of the Fed, the US central bank, in December, without raising interest rates and expected to make two interest rate cuts in 2024, brought a very optimistic profile to the global financial market. Some more anxious agents even projected the first interest cut for next March given the industry data. Rising stock markets, falling interest rates on long-term bonds, and a sharply falling dollar stemmed from this market anxiety.
The first major piece of information on 2024, however, was the US employment data released last Friday. In December, 216,000 jobs were created, compared to a projection of 170,000, while unemployment hit 3.7%, down from estimates of 3.8%. Vacancies created in November were revised from 199,000 to 173,000, while in the previous month they had fallen from 150,000 to 105,000. Unemployment remained at 3.7% (compared to a forecast of 3.8%), wages rose 0.4% a month (compared to a forecast of 0.3%) and 4.1% a year (forecast of 3.9%).
The initial December vacancy data created an initial environment that led to a resumption of the strong rise in the dollar and the rise in interest rates on long-term bonds. The strong volatility of the dollar index on Friday was therefore due to the interpretation of the data in light of the correction of information from October and November.
With the number initially appearing worrying, but later bringing more calm to markets, the dollar index returned to levels close to 102 points after a strong rise above 103 points. More controlled European inflation also helped the dollar. This lower support for the US currency also defused part of the acceleration toward a greater devaluation of the real, which closed the week below BRL 4.90/dollar. Despite the twin Brazilian deficits, primary and external current account deficits, the Brazilian financial market continues to fail to price Brazil’s risk in public accounts at this time.
US inflation for December next week and the Fed and Copom meetings on January 31 are the new big points for the Brazilian exchange rate curve.
Brazilian market continues with firm prices and exports confirming a new record
While Brazilian exports are approaching 55 mln tons, the domestic market continues to have firm prices across the board. The reduction in offers generated by exports and the lack of strategy on the part of most domestic consumers fueled the upward movement in December, which persists in January. Regionally, the start of the summer crop should have good demand, given the sign that consumers will continue with low stocks in the first quarter of 2024. On the other hand, the difference between domestic prices and normal port levels does not fuel new exports for February and March. This helps to somewhat protect internal supply and prevent surprises in the first half of the year. On the other hand, the rain has returned in the center-north of the country and should help to boost the planting of the second crop in view of the sooner-than-normal soybean harvest.
Brazilian corn exports total 54.5 mln tons with the closing of December data and January schedule. Exports hit 6.8 mln tons in December, a record for the period, and now there is a schedule of 3.6 mln tons for January. This is a great January flow, considering that the entire second half was a record. February and March should not have large shipping flows, not even through the port of Rio Grande. However, if there is a decline in internal prices and offers without takers, it would not be surprising if new shipments appeared in the middle of the summer crop.
This way, the 2023 exports are configured, and we only have the final adjustment of the record number for the period. The first half of the year, then, will largely depend on this flow of new corn supply and the grower’s selling intention. In 2023, growers did not accept the gradual decline in soybean prices and decided to sell corn in the first half of the year to be able to retain and wait to sell part of the record soybean crop. This ended up putting pressure on the corn market in the middle of the off-season and, with a severe crop failure in Rio Grande do Sul, did not help soybeans to rise, on the contrary, made them drop even more. In 2024, there is a certain sign that Brazil will lose corn area, that the summer crop will be smaller due to shortages in the South region, and that prices will skyrocket. Would it be an alternative to sell soybeans and retain a little more corn? If this occurs, the first semester may have firmer consolidated prices for corn. Even with production losses in Mato Grosso, soybeans are unable to build an upward movement, and this can help the growers’ trading decisions.
This profile is important because it is clear that corn consumers, for the most part, ended the year with relatively low stocks, prompting support for firmer prices at the beginning of the year. Exports reduce regional offers over a while, but the factor that consolidates the high is the weak stock formation strategy of consumers.
The harvest of the summer crop has begun in the west of Rio Grande do Sul and Santa Catarina still at a slow pace due to grain moisture, but many harvests for silage have already been made. There are a few sales of physical corn, with the main lots fulfilling contracts and/or being stored in cooperatives without price appraisal. The stronger advance from the 20th can help the grower’s decision and the definition of prices in the region. Yields in this region have been below 100 bags per hectare so far.
Basically, this is the only new corn that will appear on the market in January, in the Center-South of the country. In February, some crops in the south of Minas and some in pivots in São Paulo and Minas Gerais. In the south and southwest of Paraná, that is more evident for February and March. The rest of production is more concentrated from March onward. The market will have to supply itself with this supply of corn from the old crop and the few lots available from the new crop.
The 2024 second crop now finds an improved space for planting. Initially, the heat and drought brought forward the soybean cycle, with harvests advancing throughout Mato Grosso and already starting in Goiás. However, even with this anticipation, doubts were about the rainfall regime in very poor soil conditions. The return of rain between Mato Grosso and Minas Gerais boosts the mood for planting the second crop. With moisture returning, the level of security for planting improves, and from this week we should record a better assessment of the area already planted in this region for the second crop. This does not eliminate the bias of a lower area, it just inhibits the projection of a larger cut.
This challenge of the 2024 second crop, with El Nino saying goodbye to the global climate from April, and many varied expectations about this year’s production, should still generate a speculative market in the first half of the year. It must be assessed that port prices for the second crop are not going much beyond BRL 60 for August/September, and therefore for now there is no basis to support prices above exports in the domestic market for the second half of the year. The first half has all the speculative and retention space for growers to still generate highs.
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