Discussions continue regarding the 2024 Brazilian crop and a certain expectation that something could happen in the Argentine crop to send prices back up. Pressure on the government is increasing to make credit and debt refinancing possible for growers, which seems fair given the locations that cope with more serious production losses. The combination of crop failure with lower prices is truly compromising the financial health of Brazilian agribusiness. However, it is clear that other measures such as the PEP and Pepro auctions do not help the market, as was the attempt to “save” the wheat market in Rio Grande do Sul last year. This type of mechanism in soybeans, for example, could further accentuate the pressure on international prices and, as a result, be useless for operations. For corn, the summer is going well, with less than 50% of Rio Grande do Sul’s crop already reaped, warehouses are already full for February and prices are falling sharply. It is time to notice the real size of the regional crop. Growers continue to decide to sell corn instead of soybeans, a fact that caused another week of lower prices in Brazil. While the summer harvest is advancing regionally, the corn planting of the second crop is advancing quickly, suggesting earlier-than-normal harvests and perhaps a lower climate risk for part of the 2024 second crop. Without export liquidity, the path is to sell to the domestic market, and this ends up contributing to greater pressure on prices.
The week was marked by Central Bank decisions to update monetary policy. In the United States, the confirmation of interest rate stability and a market bias may have been more discouraging, that is, there are no expectations for an interest rate cut before economic indicators point to inflationary security. The United States economy created 353,000 jobs in January, and the unemployment rate remained at 3.7%, the same as registered in December. The number of jobs created was above analysts’ projections, which expected 180,000 new jobs. The unemployment rate was below the projected 3.8%. The average hourly wage in the private sector totaled USD 34.55 in January, an increase of 0.5% compared to the USD 34.27 registered in December and an increase of 4.5%, compared to USD 33.07 in January 2023.
These data reflect a still strong US economy, with inflationary risks due to demand, and there is no justification for cutting interest rates in a situation like this. The impact of this initial picture of 2024 is being registered in the dollar. The dollar index awaited employment and bias data from the Fed. After this week full of economic data, the dollar rose again strongly in the international environment, with the index reaching 104 points at the end of the week.
In Brazil, the Monetary Policy Committee (COPOM) only confirmed the already scheduled interest rate cut of 0.5% for a Selic rate of 11.25% per year. However, the COPOM was unable to persist in its excessively optimistic environment and did not offer signs that there would be a new interest rate cut in March in Brazil. It limited itself to assessing the poor growth rate of the Brazilian economy to point out the chance of a new cut in March.
Public accounts could record the worst first quarter in history, given that government revenue does not improve, and spending remains exorbitant. To try to balance, the government cuts resources from health, education, and retirement pay, limiting salary adjustments for retirees, besides raising taxes when possible to try to improve revenue collection. Economic history shows that this fiscal squeeze will compromise economic growth, especially if labor tariffs grow higher. Historical breach, with no prospect of a solution, and effects on the exchange rate.
The exchange rate in Brazil jumped to BRL 4.97/dollar at the end of the week following the international environment and anticipating the loss of international arbitrage by Brazil. On the other hand, exchange rate devaluation can help Brazilian exports, improve the trade balance and maintain active capital inflow via trade. It seems clear, however, that capital flight in 2024 will continue if the public accounts environment is not addressed, given that the consequence will be a resumption of inflation. The difficulty for the exchange rate to break the barrier of BRL 4.80/dollar is exactly in this environment.
Brazilian market remains under pressure with the advance of the summer harvest and second-crop planting
While the international corn market does not find space to recover prices, Brazilian exports also lose liquidity in February, as is seasonal internally. In this environment, the market depends on internal demand with its regional variables. The soybean harvest is advancing in several regions, growers do not accept low soybean prices, they have expectations created by the agribusiness media and start selling corn as a short-term cash alternative. So, we had another week of internal price lows, with harvests advancing into the summer, and the second-crop planting in a great window.
Domestic corn sales will lose the port reference for the first half of the year. Little liquidity at the ports, some occasional business for Rio Grande at BRL 61, and no flow to other ports. This low demand for Brazilian corn at the moment reflects the market’s tendency to converge toward purchases in Argentina from March onward. Therefore, the internal commercialization movement is concentrated only on internal demand and, at this point, the pressure on prices may be greater.
The grower’s decision to speed up corn sales to allow for, once again, the maintenance of soybeans, is not helping the soybean market and is accelerating corn lows. Another week of almost general price lows in the Brazilian market. In the Northeast, where news on imports for March reversed the regional price picture, business returned to around BRL 81/82/83 CIF Recife, against more than BRL 95 in December. Regional prices ended up falling in the same proportion. Freight rates are rising from February onward, and harvests only later may even allow for a resumption of increases in the region.
In southern Brazil, harvests are advancing and prices falling. In Rio Grande do Sul, the harvest is not half full, but warehouses are already crowded for February, and prices fell to BRL 53/54/55 in the interior. The market shows that the profile of local production is well above the early local estimates. In 2023, the state exported more than 600 thousand tons, but cannot reach 100 thousand tons this year. These sales pressures may continue in RS, SC, and PR in February given the selling need by growers and the lack of competition in exports.
In the Southeast, February should see a larger corn harvest in São Paulo, as well as a good arrival of new corn in the southern Minas Gerais. In both cases, we do not expect growers to hold corn, but we expect more soybean retention. In this context, new lows in both states may appear in February and March due to the grower’s own actions.
In the Midwest, there is still corn from the old crop in the three states, which supplies local consumers and those from other states. This 2023 corn sales flow is expected to decrease from now on, because business has already advanced, and the stocks have moved from growers to consumers in December and January. Prices dropped in Goiás to BRL 55 in the Southwest, in Mato Grosso do Sul to BRL 45/50 depending on the location, and in Mato Grosso there are still deals between BRL 40/45 for specific lots.
While the summer crop is being reaped, the planting of the second crop is progressing. In Paraná, Mato Grosso do Sul, southwestern Goiás, and Mato Grosso, the planting is progressing quickly. Despite little rain in January in Mato Grosso do Sul and northern Paraná, the locations where the soybean harvest is advancing, corn is arriving quickly for planting. Some crops planted in January are expected to be reaped at the end of May and June. What we should expect from this 2024 second crop is a harvest diluted between June and September. A very early portion and a very late portion due to the profile of the soybean harvest this summer. A more diluted second crop at harvest can avoid greater pressure on prices.
In general, February tends to be a month with the arrival of new corn and sales by growers, as well as an accelerated pace of planting of the second crop following the accelerated pace of soybean harvesting. The trading of the 2024 second crop, however, has been quite slow. The progress in sales so far has almost come down to barter negotiations given the low prices for the 2024 second crop. In Mato Grosso, we have prices of BRL 29 to 37 for the second crop, and further east of the state at BRL 40/42. These are not prices that motivate growers to sell in advance. Goiás and Mato Grosso do Sul also have prices around BRL 40 for the second crop. These levels are low due to the port that formulates a reference of BRL 57 to 60 for July/August and September. For these prices to rise, we will need highs on the CBOT and/or the exchange rate.