Porto Alegre, April 19, 2021 – While the US crop is being planted, the Argentine crop reaped, the Brazilian second crop has coped with a difficult April. Rainfall has been important in most of the second-crop regions. In some locations, there is still a soil water reserve to feed plants, but in others the losses can already be counted as irreversible. For now, there is only the perception of losses rather than effective numbers about them. While the rains do not return, it will be difficult to define the real size of the losses, especially because this year we have plantations in several stages.
A corn bag hit BRL 100 in the Southern region of Brazil last week. The reasons for such a high are obvious, already pointed out in this newsletter since the second half of 2020. The main points are:
– The modest 2021 summer crop, including the losses in the South, which now seem quite clear;
– The absence of a cut in consumption in the proportion necessary to contain more aggressive price movements that would keep demand in line with the available supply;
– Lower carryover stocks from 2020 to 2021;
– Isolated and regional harvests are insufficient to pressure prices;
– Political actions trying to impose price lows to the domestic market, but a few proactive actions by corn consumers to protect themselves from an upward movement;
– High in the international market;
– High import costs;
– Second crop with a thirty-day delay in the planting and now with the risk of drought-induced losses;
– Distorted information reaching the media and consumers showing an unrealistic supply picture.
We arrive in mid-April at the height of the 2021 supply crisis. In a situation closer to normal, the second crop would begin to reach the market in June and supply the domestic market normally from July, holding prices or converting them to export parity. However, the year is not normal. The second crop was planted too late and subject to climate variables. Unfortunately, April has been extremely dry in most growing regions. Some receiving occasional rains in the period, have some soil water reserve, but many now enter a stage with irreversible losses for corn crops.
Crops that are in pollination and silking stages will have negative results during pod filling. Crops in developing stage can be lost completely if the rain does not return for the next 10 days. This assessment of losses this year, therefore, will not be simple. The lack of rain during pollination is fatal for corn, as already evidenced in the summer crops of Santa Catarina and western Rio Grande do Sul.
In Mato Grosso, the situation is more critical in the center-south of the state, since in the areas of the center-north there it still rained in April. This precipitation was not enough to recover the soil reserve, but enough to keep plants in good condition. Of course, depending on the conditions during the planting, such production losses may already be more evident, for example in cases where there was no fertilization.
In general, the only picture that can be drawn at this moment is that the corn second crop is unlikely to reach the estimated 80.7 million tons in March. However, this picture is far from losses of 10 million tons, for example. At this point, losses of the second crop cannot be considered a catastrophe. Of course, it deserves all the attention ahead even for the environment of 2022, but we must understand that if the second crop hits 70 million tons, for example, the Brazilian market only needs 35 million tons for its demand until January 2022. The rest would be bound for exports. So, the segment that will be most impacted by production losses is the corn exporter. As the second crop has worsened, it is getting ever harder to reach last year’s 35 million tons. The reduction in exports can balance domestic supply in case of potential losses of the second crop. Moreover, the strong differential between domestic prices for July/Aug/Sep and port levels may cause many washouts, further cutting export projections.
Until the beginning of the second crop in August, therefore, the domestic market will have to supply itself with some imports and/or export washouts. The Foreign Trade Chamber (CAMEX) must remove the 10% common external tax (TEC) on extra-Mercosur corn again this week. However, in practice, the effect is null for the domestic market, as it only opens the door for Brazilian purchases of US corn. The cost of Argentine corn today is BRL 92 at the port on a drawback system. Without drawback, PIS/Cofins and other regional taxes are levied. US corn now costs BRL 102 CIF Brazilian port plus domestic expenses. The drawback rules are the same as the Argentine. At the moment, importing with or without the TEC is still difficult.
The consumer sector is pressuring the government to approve another measure, which is the removal of the 9.25% PIS/Cofins levy on imported products. This would not change the import calculations, however, it would make it easier for companies that are not allowed to deal with drawback to import and get supplies. This measure is not yet expected to be approved by the federal government.
Agência SAFRAS Latam
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