Porto Alegre, December 5, 2023 – The Brazilian domestic market coped with almost widespread price hikes in November. The main point of this movement is the extremely high flow of exports registered by Brazil this year, which, at some point, would generate this environment of reduction in regional offers and some recovery in prices, which is completely normal. There was still a possibility of some greater sales pressure at the end of the year by producers, however, this incessant
port demand has not left any slack in domestic supply. If the summer crop does not cause problems for corn, the climate situation in Mato Grosso now generates an environment of double expectations. At first, a version of the loss of planting window and a larger cut in acreage. The 2024 second crop, with undefined projections thus far, and the producers’ decisions in the next sixty days will be decisive. In addition to prices that do not rise, as they are based on export parity at the port, there is very irregular rainfall that needs to be normalized for corn planting in Mato Grosso.
Brazil’s record corn production this year allowed the domestic market to have a comfortable internal supply, without worries and allowing cost readjustment in the corn-consuming sector. For producers, a cycle of low prices but better production, a situation that did not affect profitability so much this season but brings a discouraging outlook for the 2024 planting.
In parallel to this reassuring situation for the domestic consumer, exporters brought a strong flow this year, far exceeding the one registered in 2023. The big point in the advance of Brazilian exports is China’s attitude in absorbing the majority of its needs of imports with Brazilian corn, having already shipped almost 13 mln tons this year in Brazil. However, the country met this demand and is managing to meet all Brazilian domestic demand and reach a new export record.
The point is that the internal market does not behave in a stagnant way for long periods. The excess supply that depressed domestic prices was depleted by exports. Regionally, the flow of exports has a greater or lesser impact depending on this availability situation.
Matopiba, for example, has already exported almost 5 mln tons this year, a record volume for the region. Not even the crop in the Sergipe region was able to meet all of the regional demand in the Northeast. Now, prices are surging due to excess exports and the lack of competition between domestic demand and exporters, in relevant production regions, such as Maranhão, Piauí, and Bahia. Matopiba had a record crop but also record exports, which generated an adjustment in the regional supply and a rise in prices.
We have always drawn attention in our reports to the flow of exports. The domestic consumer market usually only monitors production data and forgets to analyze its main competitor, the exporter. And exports mean a supply with no return, very different from a retention of production by growers. If there is a combination of these two ingredients, the result is price highs.
The reduction in both breeder chick housing and cattle confinement in the second half of this year contained part of the demand and helped to balance supply. However, this supply ends up being absorbed in a stressful way by exporters. As a result, the revised supply and demand framework is cutting part of the carryover stocks, now projected at 7.4 mln tons. Those are good carryover stocks, certainly, and guarantee supply in the first semester associated with the summer production. Of course, this does not mean that prices will be low, as in a semester of tight supply the producer’s selling decision is what determines the price curve.
Brazilian export commitments have now reached 51.3 mln tons. Secex brought an accumulated volume of 43.8 mln tons between February and November. This strong flow, much higher than in 2022, is what is promoting this regional downsizing of offers. We raised the annual projection to 56.9 mln tons due to the growth in weekly appointments. However, January will be a decisive month, if the domestic market allows it, and greater export demand will guarantee more flow to ports.
While exports are a reality for the market, Brazil’s 2024 corn crop is becoming unknown. The summer crop is progressing without additional risks. The South and Southeast regions have agreat potential given the November rain, and the effect of excess moisture in the South is minimal and spotty. Goiás is perhaps the biggest concern among the Midwestern states that plant corn in the summer. The most critical attention is on the crop in Matopiba, particularly Bahia’s summer crop, which may still face serious problems due to El Nino.
However, the biggest concern and uncertainty for corn is the 2024 second crop. We do not see any problem with the planting of the 2024 second crop in important states such as Goiás, Paraná, Mato Grosso do Sul, and São Paulo due to the progress of soybeans so far. Northern Minas Gerais suffers a climate situation similar to that of Bahia, and Matopiba has a very irregular situation where there must be a strong cut in the second crop area for this block, either due to the delay in soybeans or climate fears about the second crop.
The biggest dispute in information involves the second crop in Mato Grosso. It is quite clear that the bias is toward cutting the corn area in the 2024 crop. The question now is what volume of area will be reduced. As we have already pointed out here, this bad climate condition for soybeans is bringing forward their cycle, naturally raising the outlook of collapse for soybeans. Many crops that would only be reaped in February will bring their cycle forward to January, and we will have corn planted in these crops in advance. If the weather persists in soybean crops replanted in November, crops scheduled for March will be reaped in February, therefore putting more areas in the corn window. A dry summer would not be a good sign for the fall in Mato Grosso.
Besides the weather, price condition is an additional concern. There are many questions about the destination of the area planted in the second crop, trying to provoke a price reaction. The issue is that prices below BRL 40 in Mato Grosso do not remunerate the second crop and the attempt to announce strong area cuts seeks to generate a positive environment for this price hike. But most of the state’s second crop is destined for exports, and it is the exporter who is the most affected by a smaller supply. The issue is that the exporter pays the port bill, currently at BRL 63/64 for August/September, which does not allow paying more than BRL 40 in Mato Grosso. Local industries accelerate prices by paying above exporters. But all of this still does not fairly pay the second crop. Yes, we continue with the trend of cutting the acreage, undefined at the moment, but it is clear that technology will be lower in the next planting. Rain in January and February along with price movements at the port could be decisive.
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