- Posted by Guilherme Bezzarro
The Brazilian corn market presents two clear situations now. The first, at this moment of soybean pre-harvest, is that there is some pressure from regional corn sales by growers helping to adjust prices in an isolated manner. The second is some acceleration of prices for the 2021 second crop due to the foreign exchange and external prices, with greater competition between the domestic market and exporters in certain regions. Undoubtedly, the supply situation in the first half of the year seems to be quite clear, without any slack in prices either because of the harvest or demand slowdown. Now, the second half of the year is more subject to seasonal climate tensions for the 2021 second crop and the 2021 US crop. If both these crops are normal, without problems, supply in the second half will be generous to send prices lower.
Corn prices in the Brazilian domestic market are undoubtedly high. BRL 75/85 for a summer crop entry is really significant and does not show the traditional price seasonality in this period of the year. This is the most evident movement indicating that the Brazilian domestic supply will not have tranquility until the beginning of the 2021 second crop. The domestic market will try to push this adjusted supply condition in the first half, seeking to impose a regional price control, showing news on demand cuts and/or acting aggressively to hold back hikes in BM&F futures prices. Every week brokers try to create information on imports by Brazil even though import costs are still far from domestic prices. These are artifices that will continue to be used for growers to sell at critical supply times, which is part of the market’s daily life.
However, despite the difficult situation mainly of chicken farming, there have been no symptoms that there are cuts in the domestic corn demand. Falling wholesale prices for chicken meat or live chicken have no impact on corn consumption. It will only be visible when the housing actually shows a cut below the estimates for this first semester. Besides, there is no movement in the ethanol or milling industry in the direction of demand cuts. There is a potential negative impact on domestic food demand with the end of social aid granted by the federal government. However, this has not yet reached corn consumption.
Therefore, the price decline registered last week in some states seems natural and has nothing to do with demand or supply slack. We are only at the pre-harvest of soybeans, and some growers are liquidating old-crop positions with corn to make cash. In locations where the harvest has already started, prices are very good, and growers who have a little supply are selling. Nothing more.
On the other hand, the soybean harvest will reach its peak in February and March, with a strong delay and concentrated logistics. The growers or traders who need to get rid of corn before this strong arrival of soybeans have already done so or will do it in the next few days. But as soon as soybeans have a stronger harvest advance, it will be more difficult to see interest in selling corn or carrying it too far. Thus, we cannot trust the traditional information that because chicken prices are low, corn will fall. There is no such direct relationship. The direct relationship is that the cut in housing will cause a future decline in demand, which does not exist yet. On the other hand, regardless of the size of this demand, February and March will be difficult months in terms of internal supply and logistics. It is Corn may have new sharp highs.
The 2021 second crop begins to be planted in February in a more concentrated way and observing the advance of the soybean harvest. We do not see serious problems for the planting of the second crop in February until the beginning of March. Of course, this is a later crop and that will be subject to climate conditions of our fall/winter more clearly. However, we cannot say that productivity will be poor only due to this planting in February, also because it is not the first and will not be the last one to be planted in this cycle.
The second crop will be large even with some weather problems that may arise until July. So, besides the tension with the climate, we have the movement of export purchases. Today, a good part of the second crop is aimed, as it always is, at exports, but we notice good aggressiveness of internal buyers in the dispute for corn in July/August. This could even prevent further pressure on prices at the beginning of the harvest, but from then on prices would actually depend on export pace and attitudes of growers towards selling production or not. Considering the CBOT prices and the dollar curve, the levels indicated for the 2021 second crop seem satisfactory for the sale advance by growers. For higher prices, we would need problems in the 2021 US crop and/or a new currency surge.
By Arno Baasch | Agência SAFRAS Latam