Without exports, market depends on growers trading of corn decision


Porto Alegre, April 2, 2024 – The release of the Planting Intention report by the United States Department of Agriculture (USDA) offers the start of the 2024 US crop and the price guidance curve in the international market. The weather between April and September will be preponderant in consolidating a production number for price convergence to a new balance point in the 2024/25 cycle. The next big data will be released in May, with the first supply and demand picture for the next business year. In this environment, Brazil will need to carry out its exports, with greater competition with Argentina, with high US stocks, and low international prices. The port calculation is always very clear for the Brazilian domestic market, which needs to remove 40 mln tons internally for exports this year, of course still depending on the size of the 2024 crop. This reality is cruel to Brazilian growers but should be considered as the main reference from now on, that is, BRL 55/57 per bag at ports from June to September. Without exports, would the domestic market be able to sustain prices above export parity? For some time, yes, but as soon as large buyers fill their warehouses, the market will inevitably have to converge toward exports. Currently, attempts are being made to implement this bias of the domestic market being more expensive than the foreign market, in business on B3, the Brazilian futures exchange, a situation that should be normalized as soon as the early and satisfactory crop from Mato Grosso begins to be reaped from May.

The US GDP for the 2024 quarter came above expectations, at 3.4%. The consumer price index (PCE), core inflation, is expected at 2.8% for the last twelve months, basically the same level as the previous month. In short, above the Fed’s inflation target and without inflationary control.

These data corroborate the decisions adopted by the Fed in recent meetings. Strong economic activity along with inflation still resistant to ranging within the annual target justify the decisions not to cut interest rates early and not yet signal a short-term bias for the cut. Perhaps the precociousness was to affirm and project two interest cuts in 2024 without consistency of this inflationary convergence toward the Fed target. What if it is not possible to cut interest rates this year? The increase in the US domestic debt and the little incentive to buy long-term bonds from the market due to unattractive interest rates could be an important indicator in the future for resistance to cutting the prime interest rate.

While interest rates do not accentuate a downward bias, the dollar, measured by the dollar index, remains firm at 104 points and will need plenty of positive information for US inflation to return to 100 points. The devaluation of the dollar against other currencies only tends to occur with consistent information about interest rate cuts in the United States. And this information goes through inflation and economic activity. In this first week of April, employment data for March will be released. A still consistent level of employment could even send the dollar back to new highs.

In Brazil, the fiscal environment is shaping up to be another disaster in 2024. The federal government’s primary deficit stood at BRL 58.4 bln, a new record. On April 15, the fiscal balance for the first quarter of 2024 will be released. Despite record revenues, given the fiscal crunch, uncontrolled spending puts Brazil on the path to increasing public debt and rising inflation. At some point, the government will be forced to raise interest rates to finance its debt in the market. For this reason, the exchange rate tries not to align a sharp appreciation curve for the real. The 0.5% cut in the Selic rate conflicts with this deficit and inflationary situation. Without control, could the market price in this growing risk more sharply in the exchange rate? There were times when record primary deficit and rising inflation generated speculative surges with sharp lows in the stock market and an escalation of the dollar. Today, it seems that these indicators are no longer part of the foundation of the Brazilian economy.

Copyright 2024 – Grupo CMA