Domestic market of corn under pre-harvest pressure

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     Porto Alegre, June 14, 2021 – The Brazilian market has a bullish view on the part of growers based on international events, the obvious production losses of the Brazilian second crop, and some excitement, perhaps, beyond the absorption capacity of the domestic market. Both the average levels of BRL 160 for soybeans and BRL 80/90/95 for corn, to use some regional references, must be considered exceptional prices. New levels would depend on a climatic movement in the US crop that causes production losses and, consequently, an international cycle of rising prices.

     The Brazilian second crop must hit 61/62 million tons, still under final evaluation in the harvest period. The rainfall in Paraná, Mato Grosso do Sul, and southern São Paulo in June may have helped some portion of crops and slightly improved conditions. Minas Gerais, Goiás, east and south of Mato Grosso practically did not have major changes and may even have accentuated the level of losses, especially in Minas Gerais.

      This situation is very clear and unchanged. However, 62 million tons are entering the market for the next 90 days and can exercise the natural movement of putting domestic prices a little closer to port levels. If not at port levels, at least with some spread against export levels. Port prices closed the week at BRL 83/84/85 depending on shipment, in some cases even below that.

     The domestic market is trying to lower prices. There is still a movement of liquidation of stocks of the old crop and the seasonal concern of growers that the harvest will pressure domestic prices. No matter how big the production losses are, there will be regional harvests. A clear example of this scenario is the Chapadão do Sul region, which two weeks ago had prices of BRL 90/95 but closed last week selling at BRL 80, even having barely started the harvest. This fall’s drought has caused production losses but is also advancing the crop cycle, and many farms will start the harvest 20/25 days sooner than normal.

     At the same time, the point of attention is, of course, the US climate environment going forward, a factor that could change the entire profile of international prices. But a full US crop could also create additional pressures on the international market. Therefore, there is some concern about the profile of Brazilian exports. Basically, the second crop losses alone are not enough to guarantee that prices in Brazil will rise again to the levels of BRL 100 in this first semester. We must understand that if we remove exports from the Brazilian supply and demand scenario, we would have comfortable surpluses. However, Brazil is an exporter.

     We expected exports of around 35 million tons this year. With the second crop losses, we believe that the buying force of the domestic market will prevent all this volume from being exported. If such a buying force is not present, trading companies will look for international liquidity to fulfill their shipments, make their results and perhaps put Brazilian exports above what is possible this year. Exports of 30 million tons would be excessive for Brazil this year, a level that could compromise domestic supply until July 2022. A volume smaller than 24 million tons could still generate rather comfortable carryover stocks for 2022 and without major possibilities of price surges. The consumer market will also try to take advantage of the good domestic wheat crop to replace some small portion of domestic demand, not least because we continue with high pork production and record housing in chicken farming.

     Agência SAFRAS Latam

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