Price highs of corn in Santos show difficulties in some trading companies

The Brazilian corn market has a month of July with harvests progressing normally for this year’s second-crop cycle and producers trying to allocate product as much as possible in warehouses, or outside them, focusing on some future price rally. Besides, many domestic market buyers are already positioned for short-term purchases and receipts, and exports are at a slower pace in comparison to 2023, as was already predicted. What was not expected, however, was the mismatch in port prices caused by some trading companies in need of physical corn to meet scheduled shipments. Ships begin to arrive, Santos logistics, particularly, have been taken over by soybeans and sugar, and the need to buy corn arises. Some start paying prices outside of basic mathematics at the port trying to compensate for the difficult logistics at the time. This takes premiums to more than 120 cents a bushel and could lower Brazilian competitiveness in exports in future shipments.

The Brazilian corn harvest is coming to an end in some locations, mainly in Mato Grosso, Goiás, and Mato Grosso do Sul, regions that had earlier planting and a harvest situation that already started in May. Therefore, it is natural that the rhythm ends earlier than normal, that is, August and September. It is unlikely that we will have harvests coming into September to supply the market regionally. So, as we have already pointed out, it is an earlier-than-normal second crop and reaped within a window of thirty days in advance.

This situation has also brought some different variables to trading. The large flow of exports begins in July and continues until September. However, in June, July, and August 85.9 mln tons reach the market, which must find space for storage or sale. July exports are targeted at 4.5 mln tons, which for the period is within normal limits. The most significant shipments occur further ahead. Domestic demand has its normal vigor, there is no demand slowdown, but the flow of internal commercialization also has its rhythm. Therefore, the early harvest speed does not keep pace with the speed of domestic demand and exports, which makes corn overcrowd warehouses, silo bags, or even be stored in open-air spaces. There is not much surprise about it.

The issue is that demands are more concentrated for September onward due to the international market situation. At this point, growers want sales in August and September, but trading companies only offer liquidity for September onward. The market slows down, does not advance in certain regions, and business goes on basically in Mato Grosso, which has this sales characteristic. With bills due in August and September, growers wish to sell for receipt within these deadlines.

Logistics are still very busy with sugar and soybean shipments in Santos and Paranaguá. In the ports of the North region (Barcarena, São Luís, and Santarém), the situation is full boarding, and this is just a flow condition for shipments to advance from August onward. The flow of shipments in 2024 will not be the same as in 2023, when we ended up with more than 55 mln tons. This year’s focus is at least 40 mln tons. However, some ports have so far not received shipments or are far below normal, such as Santos, Vitoria, São Francisco, and Paranaguá. The largest concentration is now in Santarém (PA).

Despite this situation, we have seen extremely high prices in the port of Santos. Last week, deals at BRL 63/64 for shorter shipments, while the basic mathematics of an export parity brings us levels of BRL 58 to 60 a bag at ports, even with the current exchange rate level. What happens? Demand? No, there is no justification for international demand that has the opportunity to buy Argentine or US corn at USD 20/ton below Brazilian corn. Argentine shipments are occurring normally, with no selling restriction issues. US shipments have been quite normal at one mln tons a week. We could say that if there were difficulties in other exporters, an exceptional demand for Brazilian corn would drive up premiums. However, this is not what is happening.

It is quite clear that an “error” in origination on the part of some trading companies led to this rush at high prices at ports. Selling export volumes without due immediate origination, remaining “uncovered” in volumes to meet commitments, generates this type of erratic performance in the port of Santos. This is not the first time that this anomaly has emerged in Brazilian corn in an international downward movement. Now, Brazilian corn prices are the most expensive in the world, among exporters, and could compromise the volumes to be exported in the future.

In any case, for producers, it could be an opportunity to sell during the harvest, not only for short-term shipments but also for prices being offered for shipments from October to January. Brazilian exports are still slow in August shipments. If trading companies stopped making purchases only during the shipping period, we may have regional prices that are improving internally. At this point, real supply numbers will be decisive, such as exaggerated production projections for Mato Grosso above 50 mln tons. If this supply exists, it will appear as prices improve. Higher Brazilian export prices can also shift demand to other markets such as Argentina and the United States, which, to a certain extent, protects domestic supply for domestic consumers, even coping with slightly higher prices.

Tags: Paranagua, Santos, exports, corn, price, Brazil, sugar, soybeans, shipments, Market