Insight Focus
CONAB’s decision to maintain corn production estimates surprised the industry. However, CONAB’s figures may be conservative on the supply side and somewhat optimistic from the demand perspective.
The Worst Summer Crop of the Last 6 Years
The official Brazilian agricultural agency CONAB has maintained its estimate for the Brazilian corn crop, now projected at 115.65 million tonnes compared to 115.86 million tonnes in the July report.
The reduction in total production was mainly caused by a significant revision of the first (summer) crop. Production was adjusted from 23.44 million tonnes to 22.96 million tonnes, making it the smallest in the last six years.
Mato Grosso and Goiás Compensate
For the second (Safrinha) crop, significant reductions in key states such as Minas Gerais and Mato Grosso do Sul were offset by increases in Mato Grosso and Goiás. Production in these states were raised to 47.82 million tonnes and 9.54 million tonnes, respectively. As a result, the projection for the Safrinha crop was adjusted to 90.28 million tonnes compared to the 90 million tonnes forecast in the July report.
Ending Stocks Slashed
Although the changes in total supply figures were subtle, on the demand side, the variations are noteworthy, especially with regards to exports. CONAB raised the projection from 33.5 million tonnes in July to 36 million tonnes in the latest report, which is surprising given that the pace of exports this season is still slow.
As of the third week of August, only 10.26 million tonnes have been exported, well below last year’s figures and the five-year historical average.
Although the corn allocated to domestic feed remained practically stable in the monthly comparison, at 84.23 million tonnes in August against 84.26 million in July, the current estimate is 5.8% higher than last year’s 79.6 million tonnes.
Last year, production reached 131.9 million tonnes, 14% higher than the forecast for this season.
Analysing the overall picture, the result is ending stocks of 4.97 million tonnes, the lowest in recent seasons. This has supported the recovery of domestic prices in recent weeks and opens the door for greater volatility. However, this volatility has been contained due to expected high US stockpiles.
I believe the figures presented by CONAB are still overly conservative on the supply side and somewhat optimistic from the demand perspective. For example, in the August WASDE report, the USDA predicts production of 122 million tonnes for Brazil, while private consultancies’ estimates average 117 million tonnes, but could reach up to 126 million tonnes.
With the conclusion of the second crop’s harvest at 96%, according to CONAB on August 18, there is still room for positive adjustments in the final report of this season, to be released by the Brazilian agency on September 12.
Considering the still slow pace for this time of year, the last two weeks of August and the month of September will be crucial in defining good export volumes for Brazilian corn. If these volumes do not materialize, domestic prices could again be pressured to levels below BRL 60/bag (based on the city of Campinas, São Paulo State), bringing B3 futures closer to the values traded in mid-July.
