The domestic corn market will gain important speculative space from now on. Although the volume of corn held by producers is still significant and could be available for sale at any time, a combination of factors emerges to generate a potential bullish environment. The first is the export picture, which remains strong in November. The second is the climate situation, which does not affect the corn summer crop but could complicate the 2024 second crop in the Midwest and Matopiba. Of course, a reduction in the corn area will not generate a future shortage in Brazil but greater competition with exports in 2024. If exports fall in 2024, domestic supply will be regular but with prices in line with export parity.
Initially, there was a discussion about whether El Nino would be present in the 2023/24 season. Conflict of information among meteorologists, despite NOAA having already indicated the curve of the phenomenon since February. Now, with El Nino more than confirmed, the discussion is its intensity. The update on temperatures in the Pacific Ocean in the last quarter pointed to 1.5º C above average, configuring in the period an El Nino of normal intensity. This cycle would end in mid-2024, when a new cycle would open for a neutral climate or even a renewed La Nina in the second half of 2024.
Regardless of scientific assessments of the meteorology sector, the fact is that El Nino 2023 is erratic. This El Nino does not have a confirmation of high intensity, but what is happening this spring in South America is clearly a symptom of an El Nino as intense as that of 2016. The level of events has, until now, been very similar to 2016, such as the drought in the Amazon and irregular rains in Mato Grosso. In practice, this is what really matters for the market and national production.
In this current environment, we need to evaluate the following points to avoid a distorted curve for the real risks of the 2024 corn second crop:
– The national soybean planted area reached 57.1% last week, behind last year’s 67% and the five-year average of 69%. This volume of area only indicates that the remaining planting portion will reflect a later harvest share;
– This volume of area, in the second crop regions, is sufficient to cultivate the entire 2024 second crop within the January to March window. The fact is that if it rains in February, everyone will plant sooner or later, with better or worse technology;
– The planting of the 2024 second crop will require conditions for harvesting soybeans at an accelerated pace and planting corn afterward, with the same intensity;
– The risks of a reduction in the area planted in the 2024 corn second crop are present from November onward. The hot weather and very irregular rains in October and now in the first half of November should lead to replanting, as soybean crops are “dying” due to this climatic combination. This replanting of soybeans, unfortunately, will place part of the area for second crop planting in March, that is, completely out of the window for some regions such as Mato Grosso. In several states, including Goiás and Mato Grosso do Sul, the planting of the second crop in March is not and will not be new, therefore, not imposing a major area risk but a greater climate risk on production;
– This trend of late planting or decline in technology could worsen if there are also greater planting abandonments. Everything will depend on how the rains are in the first quarter of the year, leading producers to plant or not.
– Could this situation result in greater pressure on the corn seed market, lowering prices at the turn of the year and encouraging producers to plant? Could any high in corn prices at the end of the year also help clear seed stocks?
– As we have already pointed out in our newsletters, Matopiba, northern Goiás, northern Minas Gerais, and Vale do Araguaia are locations at risk for the 2024 second crop due to El Nino. This could lead producers to lower-risk, lower-cost crops such as sorghum again.
– Therefore, the longer the rain delays in November, with a greater tendency for soybean replanting and loss of the ideal 2024 corn second crop window, the greater the possibility of reducing area and/or technology in the next planting.
Is it already possible to project the size of the area cut in the 2024 corn second crop? Well, as this entire soybean replanting process is still taking place, with 60/70 days for producers to make a decision to plant the second crop, we must consider that there is indeed a framework for cutting area in these risk regions, but which cannot yet be precisely quantifiable.
In the short term, therefore, we have a corn summer crop that has progressed very well, with some attention only to Minas Gerais, among the states that plant summer crops. Therefore, the support movement for prices from now on is conditioned by the following indicators:
– Without a major external factor to restore prices on the CBOT and prices in Brazilian ports, the domestic market needs strength to remain above export parity. This support currently comes from the excellent flow of exports in November, which is expected to reach a new record, now with commitments of 9 mln tons. This year, exports already account for 48 mln tons out of a projection of 55 mln;
– It is clear that this volume, which already exceeds the annual record of 2022, causes a regional reduction in offers and stocks held by the market. As exports are intended to clear stocks, regional supply that would be available to meet domestic demand is being withdrawn;
– The summer crop is going well, in January a recovered corn production hits the market in southern Brazil after three years of losses. The Southeast crop will arrive later, in February and March. And the Midwest/Matopiba will have to survive with the remaining stocks from 2023 and the discreet local summer production;
– This environment of concern about the 2024 crop is brought to corn consumers with anxiety and even generating some early panic. The market will rather price the risk of a delayed second crop, with a potential reduction in area in some locations and then the risk of weather next fall. However, what the market ends up converging to is export parity between July and September. For prices to align above export parity, the 2024 second crop will need to have a real significant loss of production, causing the domestic market to compete more sharply with exports in the second half of the year. Could this happen? Of course, but not before the real problems are consolidated.
– The US 2024 crop, Argentina with a recovered production, and the wheat market will bring the international environment to form the prices of the 2024 second crop. For now, the Brazilian market has recovery support without consolidated information to support prices in the 2024 second crop.
Therefore, the climate situation continues to be problematic this spring in South America, with an erratic El Nino, with soybean replanting in several locations and bringing the risk of some potential loss of production for the 2024 second crop. This condition combined with the current high Brazilian exports generates an environment of price movement that is normal and natural. Only Mato Grosso, with all this version of second crop risk, is unable to modify its price curve from July to September, adjusted to BRL 40 in the interior, basically export parity. It will only surpass parity when the losses of Mato Grosso compromise national supply or international prices rise.
