Porto Alegre, March 11th, 2025 – The Brazilian government was the highlight in the attempt to generate actions against inflation this week. Besides media speeches against egg-laying farming, coffee, which is suffering from a historic supply situation, and even the meat market, where we are the world’s top exporter, perhaps due to internal pressures, the government tried to take measures against the high in corn prices. The reduction of the 7.2% extra-Mercosur import tax allows Brazil to look for the United States, buy corn, and not have this increase in costs. However, it is very rare for Brazil to import corn from this or any other destination other than Paraguay and Argentina. This tax is no longer levied on South American countries. Therefore, the measure is innocuous for the domestic market, but it may serve as a way for the government to “please” the US government in the context of the tariff war. The government can, at any time, eliminate the 13% import tariff on ethanol to avoid a 25% tariff by the US on Brazilian products. Meanwhile, the Brazilian corn second crop is moving into its final phase of planting and going through a delicate period of reduced rainfall and extreme heat in some locations, as well as difficulties in reaping soybeans and planting the second crop in others.
Without a doubt, the government’s decision to eliminate the 7.2% import tariff on corn outside Mercosur is not intended to lower prices in the Brazilian domestic market. It would be very naive to believe that the market would not understand the cause and effect of this measure. This is because Brazil imports from Argentina and Paraguay, rarely from the United States, which is focused on the Northeast of the country, even though it has low competitiveness. And within Mercosur, there is no import tax. Today, two situations require corn imports:
– Direct imports by consumers, subject to taxes such as ICMS and PIS/Cofins, but which are reused in the tax graphic account for the export of chicken or pork, for example. Companies that have this alternative would have a corn cost today of around BRL 88 CIF port plus internal expenses to the factory, in some cases above BRL 100 CIF factory. Therefore, today it is not possible to import corn even under the drawback regime from Argentina, let alone the United States;
– Imports by third parties for resale in the domestic market, trading companies, or direct imports by consumers who do not have the drawback regime add all these import costs. For example, the state of Espírito Santo may be the first to decide to import due to the CIF cost of domestic corn in this state. However, with all taxes included, today it would cost BRL 106.50 at the port to import Argentine corn. With the regional proximity of consumers and the port, this corn might arrive at the factory above BRL 110/bag;
Therefore, for those who talk and will keep talking about imports in the coming few weeks, we must remember that simply putting incorrect information in the media and taking bearish actions on the B3 will not put corn in the hands of consumers or decrease domestic prices. Perhaps if the government eliminates taxes such as ICMS and PIS/Cofins on agricultural commodities, prices could fall; however, some states are creating new taxes instead of reducing them.
Meanwhile, 1.7 mln tons are exported, most of it through the port of Rio Grande due to the sheer lack of proactivity on the part of local consumers. This volume, if protected by the domestic market, could avoid greater traumas. We understand that the financial cost of leveraging stocks in the current Brazilian economic situation is a present variable. As a result, prices continue to rise in the domestic market, still having a long way to go until the 2025 second crop begins in June, during the first harvests, and July at a faster pace.
The second crop is now suffering in some areas of Mato Grosso that have not yet managed to reap soybeans in the proper window and may give up planting the second crop. The share is small, but it is the highlight of the state at the moment. Then, we have a large and important region that comprises eastern Paraguay, Paraná, São Paulo, and Minas Gerais with very high temperatures in the last 15 days and below-normal rainfall. In some areas of São Paulo and Minas Gerais, planting has been halted and there may be the switch from corn to wheat and/or sorghum areas. Some rain is forecast for Tuesday (11) and Wednesday (12), in Paraguay and Paraná, but there is no forecast yet for the other areas of SP and MG.
Therefore, given so many variables, we do not see any chance of a decline in corn prices before June, with adjustments closer to the reality of the second crop only in August. Before that, we have the exchange rate, the climate for the second crop for 90 days, and the entire 2025 US crop ahead.
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