Unstable prices rein in Brazil corn sales

Brazil's 2023-24 winter corn crop sales accelerated in August, but maintained an uneven pace, as farmers take their cues from price and exchange rate variations when deciding whether to negotiate.

The current cycle ended August with over 48pc of the harvest sold, according to market participant estimates. That means producers traded almost 44mn metric tonnes (t) of the 90.3mn t produced so far in the 2023-24 season, according to national supply company Conab's latest outlook.

Sales advanced by approximately 8mn t since the end of July, when negotiations were estimated at 40pc of the harvest. The pace accelerated in comparison with previous months, but progress is still uneven.

Low international grain prices have been discouraging negotiations since the 2022-23 season, when the oversupply on the global market started leading to sharp losses that continue to this day. The front-month CBOT corn contract fell to 362¢/bu on 26 August, its lowest level since November 2019.

Occasional price gains and the depreciation of the Brazilian real to the US dollar encouraged producers to negotiate more aggressively, which was followed by a period of fewer transactions after prices renewed declines and the country's currency recovered, bringing in fewer reals for each dollar-denominated sale.

Sales were more intense at the beginning of August, as the Brazilian real depreciated to R5.74 to the US dollar on 5 August, its weakest since March 2021. But the real started to strengthen soon after that, discouraging sales for most of the month.

Activity only picked up significantly once again after 26 August, when the US dollar began to appreciate again and the CBOT contracts began rising again following an attack on nuclear units on Ukraine — a key grain producer — and higher demand for US product. Farmers maintained the accelerated momentum in early September, despite continuing to prefer sales of the higher-priced soybean.

This recent rush to trade volumes happens as producers are eager to acquire inputs — such as fertilizers and seeds — for the next crop. But the 2023-24 sales pace is below what is considered ideal progress of at least 60pc of the harvest negotiated at this time of year, according to market participants. The five-year average for winter corn sales is at over 65pc by the end of August.

Most demand for Brazilian corn comes from the domestic market, which is also paying higher prices than the export market. That leads farmers to prefer negotiating with the animal feed and corn ethanol sectors. Mato Grosso state — Brazil's largest corn producer — accounted for about 5.6mn t sold last month, with most volumes going to the corn ethanol units in the state and in neighbors Goias and Mato Grosso do Sul states.

Ethanol industry association Unica estimates that corn ethanol production in the center-south totaled 348.6mn liters (147,110 b/d) in the second half of August, up by 47pc from the same period a year before. Production since April — when the crop year for ethanol started — totals 3.1bn l, an almost 27pc hike on the year.

Forward sales for the 2024-25 winter corn crop — which will begin sowing in January — have begun, in line with the historical track, as forward sales usually kick off in July-August. Producers dealt forwardly up to 5mn t by the beginning of September. There is no official outlook for the 2024-25 crop just yet, as Conab will release the first estimate for the season on 15 October.

Soybean sales

Brazilian farmers sold approximately 77pc of the 2023-24 soybean crop by the end of August, market participants estimate. That means negotiations advanced by almost 6mn t to 113.5mn t throughout the month, still far from Conab's production outlook of 147.4mn t.

The current progress is ahead of the almost 75pc sold in the 2022-23 crop at this time in 2023. But volumes are nearly 3mn t behind in absolute numbers, as the previous season produced a record 154.6mn t. The average for this time of year is of over 80pc negotiated. Low international soybean prices hampered sales amid an oversupplied global market in the past two years.

The weaker real at the beginning and at the end of August also boosted soybean negotiations last month. Additionally, the last week of August was marked by rising CBOT futures, as Chinese demand returned to the market more aggressively.

Forward sales of the 2024-25 soybean crop were approximately at 20pc — or 33.8mn t — of an expected production of 169mn t, according to US Department of Agriculture projections. There was a reported monthly advance of almost 3 percentage points, or around 5mn t. But the late-August average is of at least 30pc sold, according to market participants.

The pace of sales was also quick at the start of September. Market participants estimate negotiations reached approximately 22pc of the estimated volumes through the second week of the month, while the start of the soybean planting window may also drive deals in the coming months.

By Nathalia Giannetti