Porto Alegre, May 9, 2023 – How much can prices of corn still yield? This is an issue that becomes more evident when prices on the CBOT may still decline by USD 1/bushel and affect the levels indicated in Brazilian ports. The dollar, again testing the level below BRL 5.00, likewise, is a pressuring factor on port levels. Could export premiums recover to the point of neutralizing this CBOT and exchange rate movement? This composition in the formation of export prices is fundamental, however, the design of the large internal supply and the selling need due to space difficulties put further pressure on prices. After a long period of time, corn has returned to official minimum price levels, a factor that must push the government toward agricultural policy attitudes. In fact, it is quite difficult to assess whether the current government will have the resources available or the political will to carry out the price protection program for growers this season.
Corn prices in the Brazilian market continue in their regional downward curve. What we have discussed in this publication since March persists. Growers neither expect such high yields of soybeans nor rapid price lows. The attempt to avoid selling at low prices keeps leading growers to retain soybeans in warehouses. The problem is that the corn summer crop also has high productivity, and the conflict is accentuated in warehouses and for the cash needs for short-term commitments. Corn is being used as cash, while soybeans remain in warehouses waiting for some variable that raises prices.
This picture is aggravated by the estimate of a second crop that is also higher due to the weather conditions registered so far, and the continuity of these difficulties with logistics is likely to continue until September. This condition of a 2023 second crop tending to large production and with warehouses still full for the beginning of the harvest has led growers, traders and cooperatives to accelerate the second crop sales. This fundamental question begins more evidently in Mato Grosso and Goiás, regions where the harvest of the second crop will start. Therefore, these states register a more accelerated movement of sales while other states are still unable to have the same movement.
Paraná, São Paulo, Mato Grosso do Sul, and Minas Gerais have a later second crop and will still depend on the weather in May and June. Growers are not conditioned to sell large volumes of the second crop before seeing crops out of greater risk. Therefore, in these states, despite the continuous fall in prices, growers have been unable to boost forward sales.
In Matopiba, business is starting to move forward, at the levels of BRL 50/54 for June/July/August in Maranhão and Piauí, but still with domestic market consumers. Trading companies should advance in purchases for shipments only after August due to space in ports and prices below BRL 50/bag in the interior. For the time being, Bahia’s summer crop is the main point of supply in May.
However, at a constant downward pace, growers are beginning to wonder how much prices can fall in this 2023 crop. Well, initially, we need to reflect that the US crop is still being planted and has ninety days of weather ahead. Besides, the second crop still depends on sixty days of weather in regions with frost risk, mainly.
Provided there is no negative surprise in terms of weather, we will be able to focus on a price curve for the second semester. Prices on the CBOT for a normal 2023 crop, above 373 mln tons, could put corn prices at a floor of USD 4.30/bushel, thus USD 1.00 below current levels, starting from the US harvest next September. If the other variables are stable, such as the exchange rate and premiums or with slight variations, the bottom for prices in Brazilian ports could be around BRL 55/bag.
A convergence of the exchange rate to levels above BRL 5.00/dollar or an increase in premiums could help to avoid this very pessimistic curve for prices. The uncontrollable fact is the pressure of internal logistics, a situation that does not help premiums. Some new fact about world crops such as in Ukraine, China, and Europe could also collaborate in the environment of containment of losses, but this is not projected yet. The market needs something new to inhibit the bearish curve for the international market and Brazilian ports.
Last week, however, there was a better movement on the part of trading companies for some volumes with withdrawals until September. The levels range from BRL 64/64.50 for June/July to BRL 62 for August/September. It is clear that Brazil will have corn shipments between June and August, however, we should not expect an exuberant initial pace that coincides with the optimistic projections of 50 mln tons, or more, for shipments this year. Space in logistics will only have some slack from September, and at this point Brazil will have to carry out large exports if it wants to reach at least the 2022 level of nearly 47 mln tons.
Now, Brazil needs to think about the flow of the second crop. One of the points that emerged last week was the price level already below the government’s official minimum prices. For a long time, there has been no concern in the domestic market over the minimum price policy, where the government exercises its regulatory power to guarantee growers the execution of a price that can balance, at least, the operating costs of production.
Last week, prices for the second crop in Mato Grosso and in the physical market, for example, were below BRL 43, the minimum official reference price in the state. In Paraná, Goiás, and Mato Grosso do Sul, prices are below BRL 55 in cooperatives. In other times, commercialization mechanisms by the government would already be activated to inhibit a deepening of the price outlook. Official purchases of corn and export subsidies would have been studied and programmed. In the last seasons in which the government exercised this regulatory power, corn surpluses were much smaller, not exceeding 10 to 20 mln tons. Currently, we are talking about exports of 45/50 mln tons, still maintaining carryover stocks for 2024. The first limiting factor for government action with practical effects on the market tumbles on very high volumes in 2023. The actions can have isolated effects for regions in critical situations.
The other doubts are about the availability of resources and even the political condition to carry out this type of action for national agribusiness in a comprehensive way. Thus, the Brazilian market will need to focus intensely on exports as a means to dispose of the internal surpluses and allow for some condition that improves internal prices.
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