Significant losses in south of Brazil will require imports of corn

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     Porto Alegre, November 23, 2020 – The Brazilian domestic corn market is looking for some bearish pressure in view of serious situations in the near future. Production losses in the South region were accentuated by another week of only spotty rainfall and without resolving or neutralizing the summer crop losses. Only the south and southwest of Paraná the situation was mitigated last week by rain. However, most crops are now entering the pollination and silking phase, and a regular climate will be necessary. In other regions, the situation has improved in terms of moisture, and crops are advancing to the end of planting.

     The still critical evaluation point is São Paulo, which has received scattered rains and is still concerned over the crop development. The update on corn production at the end of the month must reflect this scenario, that is, an extremely discreet summer crop that will require big national consumers to import as an alternative for supply. At this point, it is always important to evaluate the crop cycle in Argentina, which reaches the market only from March, as well as buying logistics in the United States, since the arrival of corn imports may take up to sixty days. The reduction in domestic consumption might even happen during the semester, but due to the size of the summer crop, some cut in demand may not reflect the result of supply. We must remember that in 2016, even with a decrease in demand, the country imported 3.3 million tons of corn.

     The Brazilian exchange rate scenario remains very volatile, as in the case of the entire 2020. The exchange rate is partly influenced by the external economic environment and partly by the internal political and economic framework.

     In the external environment, the frightening return of the pandemic in Europe and the strong advance still in the United States bring back the risks of social isolation and containment of an expected better economic recovery at the beginning of 2021. Although some positive signs with the vaccines are emerging, it does not seem clear yet that the first half of 2021 will really be a period of containment of the pandemic. Despite this, many countries are avoiding restricting social activity again, which acts as positive symptoms to the economy and markets.

     The dollar remains relatively stable at low levels in the international environment. The deadlock still present in the U.S. elections and the absence of new short-term economic measures in the United States allow the dollar to go down. Europe has strengthened measures to support companies in the face of the strong wave caused by COVID in the early fall.

     The relatively stable dollar in the external environment was not the main factor for upward volatility of the real. The dollar once again tested levels below BRL 5.30 last week, based on an expectation that Congress will evaluate the 2021 federal budget and the tax reform. At the same time, there was a possible return of foreign capital to the country, with a positive capital flow of USD 3.3 billion in November. For an economy that has no problems with its external accounts and is doing a great trade balance this year, the re-entry of capital in the country seems natural and quite clear.

     Agência SAFRAS Latam

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