Adjustment between export and import flow will define corn in Brazil

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     Porto Alegre, August 9, 2021 – The attempt to boost purchases of Argentine corn continues in the Brazilian domestic market. However, the use of washout lots continues, with trading companies seeking a better liquidation in the domestic market in relation to export commitments, in the portion of commitments in which this kind of conversion is possible. Besides, the volumes of contracts with Paraguay are beginning to be fulfilled and meeting more immediate demand in the Southern region, however, there is no room for new large lots. Meanwhile, exports continue, with 7.3 million tons already committed to shipments until the end of this month. For the time being, despite all the sales by trading companies internally, we still have exports that can be considered strong for the current domestic supply situation.

     The harvest of the Brazilian second crop is 59.9% complete, with Mato Grosso already surpassing 82%. For those who are waiting for the harvest progress to buy corn, it seems the opportunity window is running fast and almost closed. The harvest in other states has been fast because productivity is very low and wide areas of plantations will soon be reaped. Even with this advance, there is no regional harvest pressure, as is usual for this time of year.

     The first evidence is that the effect of the second crop harvest is already passing. Over-the-counter prices in Paraná, São Paulo and Mato Grosso do Sul do not yield during the harvest. The little corn that arrives at warehouses is not liquidated by growers or is only enough to fulfill contracts. So, the lot market has not been able to aggressively lower prices due to this absence of fixing of over-the-counter prices or fixing at very low levels. Mato Grosso continues to adjust supply as the harvest approaches its end. Growers do not still accept sales below BRL 75/85 depending on location. Trading companies are withdrawing contracted volumes and trying new purchases to allow business for the domestic market, especially in the South region. At some point, these ‘easy’ purchases of corn in Mato Grosso will change.

     Thus, trading companies keep converting export lots into the domestic market, also operating with new lots from Mato Grosso and Goiás to meet the southern region at CIF prices. Last week registered a new wave of deals at BRL 97/98/99/100 + ICMS across the South region. Many industries are having to replace lots of contracts not received due to the second crop losses for new purchases and, at this time, trading companies have complemented these volumes.

     The case of imports, as we pointed out in our previous editions, must be considered routine from now on. The volumes from Paraguay and Argentina are arriving. In July, 144,000 tons arrived in Brazil from this origin, and 83,000 tons from Argentina. We can consider this context as a normal trajectory. For August there are new volumes of contracts that must be fulfilled by Paraguayan corn, maybe with 200/300 thousand tons. From Argentina, we have 143,000 tons scheduled for unloading in southern ports only. No imports to other regions of the country.

     Therefore, albeit more slowly than necessary, the natural movement of imports continues. Without this movement, perhaps domestic prices would already be much higher. Apparently, volumes from Paraguay and Argentina are still not enough to cause a bearish impact on the domestic market and point to a reversal in the supply scenario. It must be noted that corn trading in Mato Grosso rapidly advanced in July to 68.8%, that is, the next 2022 second crop only arrives in the market in July 2022, and the local supply of 2021 is beginning to run out very quickly. We draw attention to the numbers that are released in Mato Grosso, with sales of nearly 70% of the expected production four months ago, which, if correct, would be determining a totally difficult corn supply in the state now.

     While the domestic market tries to supply itself with the newly-reaped second crop, with lots from Argentina and Paraguay, as well as washout lots by trading companies, exports are advancing. In the updated line-up for shipment with Brazilian corn, August now has 600 thousand tons shipped and 3.5 million tons scheduled. In the accumulated result for the business year, we have reached 7.3 million tons. Therefore, we have from September to January to export 13 million tons or only a little more than 2 million tons per month, which is fully possible. In fact, the market is not really sure and convinced that trading companies have only 17/20 million tons of sales in the international market. Sales by trading companies in the domestic market may be occurring through new purchases made in Mato Grosso and other locations such as Goiás and Tocantins. If exports surprise in the coming few months, the domestic market will have additional difficulties.

     Thus, this fine adjustment between the reality of exports and the actual volumes being imported will determine the supply and price scenario for the domestic market. Not even washouts can be taken into account at this time. In practice, the flow of imports against exports will determine the direction of prices. Unfortunately, a part of the market may be paying attention only to the portion that matters, that is, imports, being unaware that, at the other end, exports are taking place. The possibility of Paraná, Mato Grosso, São Paulo, and Mato Grosso do Sul running out of stocks in this second half is a situation that is really worrying.

     Agência SAFRAS Latam

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