Like most commodities, the international corn market is trying to find a “new” historical average, perhaps at USD 3.80/4.00/bushel on the Chicago Board of Trade. Over the week, new lows for the March contract, USD 4.30/bushel, reflect this curve in the price trend. The movement of this curve ends up occurring in the face of the full recovery of US stocks and, now, an Argentine crop that is consolidating itself at a new record. Two situations that leave the international environment without support for new highs, especially because China is well positioned with corn and has no strength for new purchases on the international market. Looking ahead, factors such as wheat in the Black Sea and the acreage cut in the United States in 2024 could contribute to some volatility. However, important factors need to occur for external bullish movements. Meanwhile, the domestic market is trying to get a balanced price while still trying to convince growers to plant second-crop corn in certain regions. The return of rain is a fundamental point for this decision, however, the very low prices today do not motivate growers to boost the second crop planting with good technology. In the future, situations involving the weather for the second crop, the US production, and the exchange rate can generate internal volatility that will improve price levels for the second crop. Without these factors, there is a lack of arguments for an uptrend, and the exaggerated cuts in the projections for the Brazilian crop will not be consolidated, having a more negative effect on prices at the crop of the second crop.
The international financial market has been tense in February. Record breaks in the S&P 500, a global stock indicator, reveal that the financial market does not foresee a recession and looks at the Fed (US central bank) with a focus on maintaining interest rates this semester.
This situation kept long-term government bonds at higher interest rates last week, favoring an increase in the dollar index to over 104 points, the highest level since November 23. This week, US inflation for January will be released. Today, accumulated at 3.9% in twelve months, it is practically double the Fed’s annual target. If inflation remains persistent at this level, especially because demand remains strong internally, new highs in long-term bonds and the exchange rate may occur. This situation could even raise hypotheses about the need for a new increase in interest rates to rebalance inflation. If the January inflation is indicated at a level considered good enough, the picture will be the opposite.
The real was shaken by this strengthening of the dollar in early February. The real made several attempts to break the BRL 5.00/dollar barrier in recent days. The starting point is actually the dollar index abroad, which follows the alignment of US inflation. Therefore, higher inflation in January could raise the index again and bring the real to a more consistent context of breaking the BRL 5.00/dollar barrier. Otherwise, a slowdown in the index will bring the real back to less than BRL 4.90.
At the same time, we have chaos in national public accounts with a projection for the first quarter following the disaster of 2023. More taxation and only a few spending cuts suggest the maintenance of fiscal imbalance and impacts on the expectations of the financial market and international investors. It is a matter of time before Brazil starts being downgraded by international agencies again, with impacts on the exchange rate. The inflationary risk remains as a consequence of the current economic policy, besides the institutional risk that comes into the scope of international investors more intensely with last week’s new episodes. The great neutralizing point for the exchange rate is that the country still has security in its balance of payments through reserves built in the past. Without this, we would already have a much more devalued currency.
USDA maintains a bearish configuration for international prices of corn
Replenishment of stocks, nothing more traumatic for prices than a comfortable global supply situation. This is the picture that continues to be pointed out by USDA in its February update for the supply and demand picture. The United States with a good position of stocks, Argentina with a record crop, Europe reducing imports, China feeling comfortable, and the Black Sea with no worrying news for regional supplies establish a situation for prices that, fundamentally, does not guarantee a potential recovery. The size of the cut in the US area in 2024 sets the point of attention for the first half of the year in international prices.
Prices on the CBOT made new lows last week, in the March contract. Very comfortable US stocks and aggressive Argentina in sales for March onward consolidate a picture of good supply in the first half of the year and a market that needs a new variable to resume some upward movement.
The USDA’s February report did not bring any modifying surprises to the market price curve. The main point continues to be the replenished stocks in the United States with the record-breaking 2023 crop. USDA cut the consumption projection in the ethanol segment, which allowed for slightly higher stocks, of 55 mln tons, in this February report. These are the best local stockpiles since 2018, and the market needs plenty of demand until August to reverse this expansion and cause some bullish fundamental impact.
One of the demands that could emerge is exports, with Brazil’s absence of heavy sales in this first half of the year. However, US exports are doing well but are not exceptional and are in line with USDA’s weekly projections. The US domestic demand is already priced in and can exert little upward volatility.
Therefore, the market now comes down to a few points:
– The wheat market environment, with decisions involving Russia and its exports in the first half of the year. Wheat highs could help corn in some positive movement;
– The US acreage to be announced on March 31. The bias persists toward a reduction in the corn acreage for 2024, in favor of an increase in the area of soybeans. The very favorable exchange ratio for soybeans establishes this trend, besides the need for crop rotation this year due to the excessive planting of corn for the last two years. At the end of February, there will be the USDA annual forum, in which this bias will be confirmed, however, the estimated area does not have the weight and relevance of the effective research carried out in the Planting Intention report, which is only released at the end of March. A cut beyond 3 mln acres in corn could suggest some speculative movement with CBOT prices;
– Climate for US planting in April/May suggesting a normal configuration;
– Argentine harvest from March, with aggressive exports that could be a factor of pressure on international prices and premiums;
– Brazil possibly resuming exports from July this year.
The Argentine production was updated by Safras & Mercado to 56.6 mln tons in February. The significant and record acreage is balancing local production. Argentina has the potential to resume exports of around 35/40 mln tons. It already has a little more than 10 mln tons in export registrations, and, there is no doubt, that will bring pressure to international premiums and also to the CBOT with this production and aggressive selling intention. The rain is returning to Argentina, after 15 days of strong heat and little moisture. The effect of this framework should be isolated and will not prevent record production results. Of course, February and March still depend on good rain in producing regions.
The cut in imports on the European side was important in this USDA report for this season. Europe had expected imports of 24.5 mln tons and, now, this expectation has been reduced to 23 mln tons. The possibility of a larger crop in 2024 in the bloc and the large supply of wheat in the Black Sea may be reducing corn needs this semester. Ukraine has no news so far, just increasing its export potential in light of regional flow agreements.
The Chinese picture is very comfortable at the moment. It carried out imports from Brazil and Ukraine in the second half of 2023. It reaped a record crop in 2023. It may only resume imports from July onward, perhaps again absorbing volumes in Brazil and with purchasing possibilities still in Argentina. However, there is no movement toward purchases of US corn, a factor that is not favorable for CBOT prices.