Porto Alegre, October 11, 2021 – The countdown for Brazilian supply until the start of 2022 second crop has been a challenge for domestic market agents. On the one hand, sellers only seem to take into account the size of the production losses of the 2021 second crop and do not observe that the South region keeps importing corn, and that, despite the losses, growers still hold corn internally. On the other hand, consumers are trying to take advantage of the grower’s continuous selling interest and bring prices down as much as possible, regardless of putting BM&F futures prices below export levels. What is happening right now, with this movement, is that exports have been resumed and will again be significant from November to January. Corn that could supply the domestic market is being driven for exports with the help from consumers.
Imports registered by Secex in September hit 407 thousand tons, basically to meet the demand of the South region. Argentina and Paraguay continue making the Brazilian regional supply. Year to date, we have 1.35 million tons. October has a schedule of 260 thousand tons coming from Argentina, while Paraguay must export 200/300 thousand tons to the South region. In other words, the South region will receive nearly 500/600 thousand tons of corn from these two origins in October, which supplies a good part of the regional market. Of course, most of this volume would come from Mato Grosso do Sul and Paraná, but due to the second crop losses, it is being exchanged for Argentine corn. Besides these volumes, large consumers in the region also absorbed good volumes from trading companies to be delivered in September and October, including a portion of consumers in the Southeast and Goiás. In the Northeast, there is now the arrival of the crop from Sergipe, which also pressures regional prices.
This is one of the points to hold back corn prices in October. A share of consumers still holds stocks. Many growers had not yet made purchases of inputs for the summer or 2022 second crops and started selling physical corn to cover these seasonal expenses. Urea jumped to almost BRL 4,000/ton and requires more resources from growers to do the same planting, besides all other inputs. This higher cost is a factor that may influence the technology used in the 2022 second crop, that is, some retraction in fertilization.
However, we are in the first half of October, growers still have corn for sale, and the acceptance of lower prices to sell ends up consolidating the situation of prices closer to BRL 92 CIF SP and Santa Catarina. While consumers use the BM&F and the internal purchase restriction to find a ‘bottom’ for prices, a market agent resurfaces: exporter.
With the domestic market trying to buy at BRL 90/92 CIF, trading companies saw the possibility of washouts become ever weaker. The pressure to sell large lots to the domestic market disappeared with an export parity of BRL 88/89 and a domestic market at BRL 90/92 CIF. There was a renegotiation of freight packages between trading companies and railroads and carriers, offering space to make transport possible at lower costs as far as the ports. For the last thirty days, more than 1 million tons may have been bound for exports with corn from Mato Grosso. At this point, as Brazil needs to buy urea, and Iran is one of the great sellers of this fertilizer, international bartering has been resumed and may be allowing additional premiums for corn to that destination. At the end of the week, port prices were at BRL 91, that is, the same price intended by buyers in the domestic market.
In other words, in the middle of the biggest second crop losses in Brazilian history, the domestic market ignores this new export movement and tries to introduce new additional bearish domestic factors. It is clear that this movement is normal and is part of the regional situation. However, counting on a perfect summer crop in a year of La Nina, and now with Argentina having new export registrations closed, seems premature and is allowing what should not happen, that is, new exports.
Safras & Mercado is reducing its export projection from 20 to 18 million tons. This is due to the result of September shipments and the October line-up, which is just over 1.5 million tons. The quarter from November to January may complete the necessary volume of 18 million tons. The surprise would be if these new additional exports go on, and with the year’s cumulative volume rising again. Even so, carryover stocks are now just over 4 million tons against 6.5 million in the previous stocks. We continue with a very tight supply and demand balance to facilitate new exports and depend only on the summer crop.
Argentina has not made an official statement on the halting of export registrations. According to information from the Safras & Mercado branch in Argentina, in practice the registrations were not closed, but the government has not issued new registrations. The government defined to the market a projected volume of possible exports not to jeopardize domestic supply. This volume reached 38.5 mln tons, and automatically the registrations above this volume stopped being issued. In practice, there is no formal closure, but a technical blocking trigger. So, registrations for new exports only for the 21/22 crop, which starts to reach the local market at the end of April. Shipments of major volumes already purchased are not blocked, so the volumes bought by Brazil for this year end will be delivered.
Attention to this fact is even more important for the Brazilian market. If, on the one hand, Brazil resumed exports, and, on the other, Argentina will only have corn after May 2022, in case of a new wave of highs in the Brazilian market, the only alternative will be the United States, whose corn is actually quite expensive. Thus, even with strong domestic consumption, the domestic market seems to bet and run the risk of counting on its own supply. As few deals are taking place within the Brazilian domestic market, except for Mato Grosso with exporters, we are more concerned about domestic availability further ahead even with the harvest of the summer crop.
Agência SAFRAS Latam
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