New highs of corn reflect exchange rate, climate and demand

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     Porto Alegre, October 5, 2020 – Without good demand, it is always difficult to find room for sustainable price hikes in any commodity. So, when we look at the record prices of corn and soybeans in the Brazilian environment, we notice there is a fundamental factor consolidating the highs: domestic demand. Great chicken production and strong feedlot in pig farming are indicators that are reflected in the demand for corn and soymeal internally, with consequences on price volatility. Exports are within the expected target, without any abrupt deviation so far. However, the exchange rate has been a very important variable for price formation. While the market tries to focus on the media a reduction in an extra-Mercosur tax as an argument for domestic prices in Brazil, we note that the exchange rate ends up absorbing more than the possible benefit of a tax reduction. Definitely, the road to corn supply is long until July 2021, and it will not be surprising if some demand rationing is needed until then.

     Brazilian corn exports are beginning to exceed 23 million tons, and with shipments scheduled in October, which amount to 4.3 million tons. This reduction in the pace for Oct/Nov and December is normal in the Brazilian market, and perhaps the last two months confirm shipments of 2 to 3 million tons a month. The doubt now is about January, since we do not notice a large volume of business for this period. Owing to the difficulty of buying at very high premiums in Brazil, a wave of new business for the last quarter still seems difficult to the point of generating an additional flow of shipments for the period, despite the international demand for this.

     We do not see either the slightest possibility that trading companies will reverse shipments during the period to meet domestic demand. There is no space for this. On the contrary, the race for physical corn and future deliveries to meet exports continues. Business in Paraná at BRL 63 via railway, in southwestern Goiás at BRL 56/57, and in Mato Grosso between BRL 53/55 last week reflect that there is no room for washout this year.

     Prices started to reach very high levels. In southern Brazil, BRL 65/70 in Rio Grande do Sul and Santa Catarina, and BRL 60/63 in Paraná. In the Southeast, the scenario may reflect a strong new price increase in October, given the low supply of this new month. The week closed with São Paulo at BRL 63 in the interior and BRL 67/68 CIF Campinas. Minas Gerais at BRL 62 CIF Uberlândia, and BRL 60 in Triangulo Mineiro. In the Midwest of the country, the market presented a good volume of business in Mato Grosso between BRL 54/55 for Nov/Dec. Goiás between BRL 57/60, and Mato Grosso do Sul between BRL 55/58. Ports reached BRL 67 over the week.

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