Government to reduce federal taxes on imports of corn until December

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     Porto Alegre, August 23, 2021 – The harvest of the second crop is heading towards its final stage, even with very strong delays in Paraná and Mato Grosso do Sul. Insurance assessments and an attempt to wait for the reduction in moist grains make the harvest in these states still a little slow. But in two to three weeks, they must also be finished. Now, the price formation will be aligned with the sales decisions made by growers, the volume of imports, and export flow. The government is proposing the withdrawal of the PIS and Cofins taxes, currently at 9.25%, from the import cost. Undoubtedly, the measure can help everyone to have access to imports under the same conditions but will not change or reduce import costs within what is routinely calculated.

     Imports from Paraguay to Brazil are routine. Every year Brazil buys nearly 1.2 to 1.5 mln tons from that country. This year, the imports may hit roughly 1.8 mln tons. Nothing new or exceptional. Basically, those who import Paraguayan corn are companies with the possibility of dealing with drawback, that is, using or reducing import taxes incorporated in the final export products.

     The government announced last week it may approve a measure of exemption of PIS and Cofins taxes from corn imports, for any consumer sector, until December. This is an important measure to enable imports for consumers and traders who cannot use drawback as an alternative to balance tax costs. If approved, the measure will allow any consumer to import without this tax, including traders and trading companies, to resell imported corn in the domestic market without this additional cost.

     In practice, this does not change the import cost, which depends on the basic math of FOB prices and freight. This tariff is no longer part of the import calculation as the companies that imported did not have this tax as a cost. For the domestic market, the picture changes little. We need to see what the real attitude of the domestic consumer will be when importing as well as the commitments by growers.

     The information came at a time of expiration of second-crop debts, which may help the producer’s decision to sell. For the measure to really have an effect on domestic prices, more imports need to take place. So that domestic market prices may fall, Brazilian producers will need to sell. The US harvest is always a factor of attention to international prices and import costs. Argentina’s attitude towards its excessive exports in the coming weeks is a piece of data to be evaluated. In short, more buyers can participate in imports, but the costs are still high, regardless of PIS/Cofins.

     Brazil now has commitments of 255,000 tons from Argentina to reach Brazilian ports between late August and September. In total, so far there have been 408,000 tons effectively bought and unloading or to be unloaded in the southern region of Brazil. This volume helps to supply the South region and can actually present more purchases with the exemption from federal taxes. How long Argentina will keep selling is the general question of the market. US corn is still expensive compared to Argentine corn for Brazil.

     On the other hand, exports continue to occur. Now, 8.7 mln tons are permanently committed to exports. There are only 11 mln tons left for the target of 20 mln in the business year. The first ships of September have started to appear, and shipments may hit 4 to 5 mln tons next month. If there is a more aggressive situation of pressure on internal prices, which is probable, washouts will tend to decrease, leading trading companies to allocate their corn for shipments from October to January. From then on, the domestic market would depend only on Argentine and Paraguayan corn and on the post-harvest domestic availability of the second crop.

     The planting of the summer crop in Santa Catarina and western Rio Grande do Sul is starting. Soil moisture is not comfortable, and the risk of late frosts is evident. However, planting will advance in the next three to four weeks, with corn to be reaped from mid-January onwards. The big concern is really La Nina, which once again brings risks to the summer crop in the South region.

     Agência SAFRAS Latam

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