Brazilian domestic market has slow initial corn export flow

The harvests of the record Brazilian second crop are advancing, and prices are beginning to decline more aggressively in places where the entry of corn is already more evident. However, regardless of the harvest, the market prices the port. Levels of BRL 64 to 66 over the week at ports, with little demand for exports for July, slow down the liquidity of the arrival of the second crop. Domestic prices are adjusting to this condition, which reflects the low port prices, due to the CBOT futures and the exchange rate, and a still slow port flow. The harvest pressure will initially meet domestic contracts and the first shipments, but as the harvests reach 50%, the domestic environment is not that promising for prices.

The rain and moist corn in the fields are slowing the pace of arrival of the second crop into the Brazilian domestic market. Besides, very low prices are inhibiting the option of growers to reap very wet corn and accept still high discounts in warehouses. So, there is an attempt to delay the harvest, waiting for the corn to lose moisture in the field to avoid a greater discount on the already low price. While the harvest does not advance at a fast pace, there is this transition between the end of the summer supply and the beginning of the second crop.

Given the seasonality of planting and harvesting of the second crop, the corn arrival begins to be more aggressive in July. The Brazilian domestic market anticipated this harvest movement, based on the vision of very favorable weather conditions in most producing states and greater difficulty in the prices coming from ports. Thus, even without harvest, domestic corn prices are falling, trying to align with internal liquidity. From now on, with plenty of soybeans and sugar being shipped in the main ports, it seems natural to expect freight conditions to resume higher prices due to both domestic and export demand. Without a variable in terms of external prices and/or exchange rate, the chances of rising corn prices seem only remote.

This situation is still occurring in regions where the second crop is still a little distant, such as São Paulo, Minas Gerais, and southern Brazil, where the delay in the harvest in Paraná and Mato Grosso do Sul ends up delaying the arrival of new corn to large regional consumers. This more difficult transition was already expected, despite sources of information projecting harvests in May, which did not happen. So, some regional prices are firm due to this transition but under pressure in other regions where the harvest has already started.

The issue now is the pace of exports. In July, there will still be plenty of soybean shipments at ports and, in the case of Santos and Paranaguá, still plenty of sugar. Corn needs to find space, and at this moment the line-ups of these two ports plus Barcarena, São Luís, and Vitoria do not have any ships scheduled in major volumes for July. The few ships scheduled for June were rescheduled for July. By the end of June, there should already be at least 2 to 3 mln tons scheduled for July. Only 630 thousand tons are scheduled for June and 825 thousand tons for July. This is a slow start to a profile of a record-breaking corn second crop.

This slow export flow ends up strengthening sales to the domestic market. In addition to the contracts already signed, domestic consumers will now have a greater selling interest amid growers given the difficulty in finding immediate liquidity with trading companies and at the port. Many trading companies are absorbing batches from growers, even through barter, and passing them on to the domestic market due to the lack of liquidity on the international market for immediate shipments. It seems that exports will take a while to show large volumes, although this is essential for the balance of the domestic market.

External variables and the exchange rate can impact port prices and offer opportunities to the Brazilian market. However, the two main issues now are the weather in the US Midwest in July and the exchange rate in Brazil. As we have pointed out, the war in the Middle East has not yet brought an aggressive variable to commodity prices that might change the domestic environment for corn. The fact that Iran is at war does not mean that it will not export urea and import corn of Brazilian origin. Therefore, this movement cannot be considered a bearish factor for corn.

Tags: second crop, exports, harvest, corn, Brazil, prices, Market