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COVID-19: Impacts of the pandemic on the corn and soybean markets

Posted by Guilherme Bezzarro

The demand for corn oil has been heated since the end of 2019, the lack of availability in the market has made prices increase. However, this scenario was intensified with the impacts of current coronavirus pandemic (COVID-19), as corn oil suppliers mainly work with the beverage and brewery industries, which have considerably reduced the consumption of raw materials due to the closure of bars and restaurants. Only in the city of São Paulo, these add up to more than 50,000 establishments.

As a consequence of less demand for these by-products generated in the corn industry, factories reduced their production, supplying less oil and meal, impacting on the Offer vs. Demand in the corn oil market. In Brazil, the forecast now is that corn oil should only be available from September on, with a price 30% more expensive compared to the previous month. Domestic market suffers from this shortage, since whoever has the product ends up choosing to export it, as the purchase price of foreign market is more aggressive and becomes more even more attractive with a dollar rate above R$ 5.

Soybean oil, a flagship in Brazil, has also been impacted by some consequences of the virus. The first shock was even before the virus arrived on Brazilian soil, it was when the crisis started in China, as the Chinese are the biggest buyers of soybeans. Also, volatility in exchanges caused CBOT and dollar to rise and go down every day, creating instability and forcing many players in market to not offer any price at all. In addition, the delay in the harvest meant that the oil, which is normally available between the months of February and March, only came out a month later, and when we finally started to have soybean oil available, the virus arrived in Brazil.

With the social distance, and the closure of several commercial establishments, the circulation of vehicles decreased drastically and with that the consumption of fuel. Oil is on the verge of collapse, having reached the lowest price in the last 20 years, hitting one of the main industries in the country, BIODIESEL. Lower levels of fuel consumption plus lower oil prices led biodiesel industries (which consumes a large part of vegetable oils in Brazil and balances commodities prices in domestic market) to reduce their production by 30%-50%. The Biodiesel Auction, which had its second phase cancelled, is already forecasting a significant drop in purchases, which will impact the market in a way never seen before.

What sustains the market is the sudden and thirsty return of China, which in early March returned to buy soybeans from Brazil. In addition, major crushers are exporting oil, taking advantage of the excellent exchange rate and selling the product from Brazil to prevent prices from falling with oil surplus in local market.

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