USDA points to lower-than-expected planting intentions of corn

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         Porto Alegre, April 5, 2021 – The year has been a little more tense than normal in the international market due to several indicators. At first, the anxiety of markets about the social liberation of the population and the impact of this movement on the global demand for commodities, in a cycle of very low interest rates and high liquidity. The maintenance of the strong Chinese movement of soybean purchases in the international market establishes a good demand profile for this commodity, and with the 2020 crop losses in the United States, stocks drive prices.

        The context of soybeans multiplies the competition for area with corn. At this point, USDA brought the planting intentions report for the 2021 season with a slight growth for the corn area and a more significant expansion for soybeans. However, the market expected a greater impact on planting from these high prices and low stocks and, as we pointed out in our last issue, it is more difficult to find area for expansion in countries without an agricultural frontier, such as the United States.

        USDA indicated 91.14 million acres for corn and 87.6 million acres for soybeans. Discreet growth for corn and a little better for soybeans, but below what is necessary to replenish stocks for 2021/22 and well below private estimates. Now, these area numbers put more pressure on the potential weather conditions for this spring/summer, in which we will have volatility and new expectations about prices. For Brazil, a new wave of opportunities for growers for both 2021 and 2022.

         Tensions over the approval of the 2021 federal budget persist and lead the exchange rate to greater short-term volatility in Brazil. The chances of budgetary maneuvers inducing the government to break the spending ceiling bring negative expectations to the financial market regarding the volume of public debt, the need for financing, and the strategy of maintaining economic policy at low interest rates and high exchange rate.

         Preliminary figures show the public debt is reaching 90% of the GDP estimated for the country. As we are in a slow process of economic growth, due to the pandemic, without GDP growth there is no proportional cut in this relationship with the debt, and the process needs adjustments. Hence the concern about the new federal budget and the interest rate policy. Every week it is clearer that the central bank will maintain its policy of rebuilding interest rates, be it because of the approaching inflation or the need for moving the short-term public debt, also giving a sign of control to the market.

         The exchange rate keeps pricing this internal tension about the budget and ‘forcing’ the central bank to adopt measures to hold back the emerging inflationary scenario. As Congress does not seem concerned about future inflation and just wants to increase expenditure, the market prices this risk through the exchange rate. For this reason, the dollar tested the level of BRL 5.80 last week, still without a clear bias of reversal by the real. Even with sharp losses of the dollar in the international market, the real only failed to fall further in an economic situation that is still very problematic. When the Economy Minister talks about a double-digit inflation rate, the market tries to protect itself from that risk.

         Agência SAFRAS Latam

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