Market tries to regard imports of corn as a bearish factor


     Porto Alegre, August 3, 2021 – Every year Brazil buys nearly 1.5 million tons from Paraguay, regardless of price conditions in Brazil. Therefore, importing corn is normal in Brazil’s Southern region, and the same happens sometimes with the Northern region (in this case, with Argentine corn). This year’s problem is that the second crop in Paraguay also has sharper production losses, and consumers in southern Brazil need to look for alternatives.

     At first, they boosted purchases from trading companies through internal washouts. At a time when trading companies raised sell prices too much, imports from Argentina began to make sense. So, news on purchases of Argentine corn must be considered normal, and the market must accept that as a natural movement in the face of historical losses of the second crop. On the other hand, one must not believe that this factor alone will supply the domestic market or growers will sell at any price. Of course, we are at full harvest, there are still chances of international prices falling with the arrival of the US crop, besides exchange rate volatility. Observing the pace of exports, sales profile by growers, and the actual import data seems to be an equation to be evaluated going forward.

     In an important week for the global financial market. Markets show strong volatility in commodities and stock exchanges, oscillating between future optimism and the risk of economic slowdown. Attitudes on the part of China towards commodity markets and companies, particularly, have not sounded good to global investors. Even though exchanges hit a new record last week in the United States, tensions between the United States and China seem to resurface in this global environment.

     Meanwhile, the Fed decided to maintain its stance on economic policy, promoting no changes to the asset purchase strategy, let alone the logic of interest rates. In this environment, the dollar dropped sharply in the international market and ended up affecting the real in Brazil, with the dollar falling below BRL 5.10. Now, the Copom meeting at the beginning of August has indications for an interest rate rise between 0.75% and 1%. Would that be enough to attract more foreign capital and consolidate the real’s appreciation in the coming few months, perhaps helping the government to contain inflation? The fact is that we still have many external factors weighing on inflation, as well as internal political factors to define the exchange rate trajectory.

     Another important piece of data for the week was the global economy assessment report. At this point, the positive GDP growth data for this year and projections for 2022 were surprising. The recent pressures on prices worldwide reflect, for the most part, unusual developments related to COVID-19 and transitory incompatibility between supply and demand, according to the International Monetary Fund (IMF), which projects inflation to return to its pre-pandemic levels in most countries in 2022, although uncertainty remains high. Some important indications:

     – “High inflation is also expected in some emerging markets and developing economies, partly related to high food prices,” the IMF said in a report on economic projections;

– The IMF attributed the current inflation peaks to the result of the base effects of last year’s low commodity prices;

     – Under this scenario, the IMF recommends that central banks generally examine transient inflationary pressures and avoid monetary tightening until there is more clarity about underlying price dynamics;

     – Clear communication from central banks on monetary policy prospects will be key to shaping inflation expectations and protecting against a premature tightening of financial conditions,” the IMF said;

     – However, the document warns there is a risk that transitional pressures will become more persistent, and central banks may need to take preventive measures;

     – Risks around the global scenario are negative. A slower-than-expected release of vaccines would allow the virus to have new mutations. Financial conditions may tighten quickly, for example, from a reassessment of monetary policy prospects in advanced economies should inflation expectations rise faster than expected,” the IMF said;

     – This scenario, according to the IMF, would be a double blow on the emerging market and developing economies due to the worsening dynamics of the pandemic and more restrictive external financial conditions, and would severely delay recovery and put global growth below perspectives;

     – According to projections, the IMF maintained global economic growth at 6.0% this year –  in line with the April report – and raised the estimate for 2022 from 4.4% to 4.9%.

     In summary, the signs of global inflation are very clear, but governments must try to maintain liquidity to facilitate the recovery of post-pandemic economies on a consolidated basis. The resumption of the interest rate curve may affect emerging economies, and there is a proactive need to prepare for this movement.

     Commodities had a clear move after the IMF report. From iron ore to gold, passing through agricultural commodities, they all suffered strong downward pressure. One example was the sharp decline in coffee prices despite historical production losses in Brazil.

     Agência SAFRAS Latam

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