Long off-season of corn keeps attention to internal supply

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          Porto Alegre, February 23, 2021 – The infeasibility of imports now is a point that does not reassure the Brazilian domestic market about the supply in the first half of 2021. The carryover stocks are getting close to 6.5 million tons for 2021. Until the beginning of the second crop, we have regional harvests, which will meet part of the local demand. However, it is a long way until August to guarantee domestic supply. When this adjustment in stocks occurs, of course, prices will find a balance point and, therefore, until July, at least, prices will be the factor that must force the settlement of demand and adjust this supply until the arrival of the second crop.

     The Brazilian export data are being closed at 34.86 million tons in the business year of 2020/21, which ended in January. A number within the projected since the fall of the US crop in August/20 provoked a change in the international environment, together with the start of corn imports by China. Brazilian imports, in turn, stood at 1.45 million tons, slightly below 2019, perhaps reflecting the exchange rate and price hikes in Paraguay.

     With these two pieces of data and internal demand adjustments, it is possible to approximate the number of stocks to reality. Demand does not have any sign of stabilization or reversal, in view of the swine herd, demand for confinement and record housing in the chicken industry for the last three months of the business year, from November through January. Thus, carryover stocks are now estimated at 6.46 million tons, slightly below the previous figure of 6.8 million tons.

     The assessment of these numbers needs to be very realistic as they imply the supply of 2021. The Brazilian summer crop has its losses due to the drought in the South and the strong incidence of pests in Paraná and Santa Catarina. Consumption must hit 36/37 million tons in the first half, with a supply close to 30 million in case the crop in Matopiba is reaped until July.

     At this point, the market would need a premature arrival of the 2021 second crop in the Center-South, with harvest in June and stronger pace in July. However, the climate has weighed heavily on La Nina this year. The soybean crop is coming very late, and consequently corn has a significant planting delay, at least in relation to the last five years. The 2021 second crop is later than the 2020 second crop.

     With a later planting in 2021, there will only be corn in major volume and meeting all internal demand from July 20, more precisely August and September. First of all, this means that the Brazilian off-season will be longer than normal and requires from the small supply of the first half the commitment to supply the entire market. In this context, it seems very difficult that we do not have surprises with higher domestic prices until the month of July, perhaps even with some demand rationing.

     There is no possibility that this delay in the planting of the second crop causes cuts in the planted area of the 2021 second crop. The area will be record-breaking, and the planting may advance until April in some locations. Less rain in the Midwest of the country and early cold, in a year of La Nina, in Paraná, Paraguay, and Mato Grosso do Sul can generate nervousness, tension and retention on the part of growers who still have old-crop or summer-crop corn in warehouses or may have slowed down the sales of the second season.

     For this reason, we must evaluate that the second crop will be planted in a record area. However, we have the climate variable over three global crops: the Brazilian second crop, the US and Chinese crops of 2021. If they all have good results, prices must settle down in the second half of the year. However, the US crop is the one that really cannot have problems in a year of decreasing stocks.

     At the same time, there is doubt about the Brazilian volume to be exported in 2021. If the US crop does not have a strong recovery or cope with some weather problem, the demand for Brazilian corn would grow in the second half. Even with a US crop without problems, we have a new variable that is totally imprecise and unpredictable: China’s performance in the international corn market, and the possibility of the country starting to use Brazil as a supplier. That would be a new leverage point for Brazilian exports.

     Agência SAFRAS Latam

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