Brazilian Corn: Heated Domestic Demand Challenges Export Parity

The corn market in Brazil has presented a peculiar scenario in recent times.

Photo: Corn crop, with cob and graph. Generated by Gemini

Contrary to the traditional logic of parity with international prices, especially those of the Chicago Board of Trade (CBOT), the domestic price of cereals has remained consistently above the level that would make export business viable. This dynamic, driven by a series of complex factors, deserves an in-depth analysis to understand the prospects and challenges for the different agents in the production chain.

Factors supporting high domestic prices:

Several elements have contributed to this appreciation of corn in the domestic market:

1. Robust domestic demand: The domestic appetite for corn has grown significantly. The expansion of the animal protein sector, both for domestic consumption and export, is driving demand for feed. In addition, a major factor is the growing large-scale production of corn ethanol in Brazil. This new consumption frontier has exerted considerable pressure on the domestic supply of the cereal.

2. Price dynamics in Chicago: The international benchmark for corn, the CBOT, is directly influenced by expectations of a robust American harvest. The United States Department of Agriculture (USDA) has indicated an increase in the area planted with corn at the expense of soybeans, which, under favorable weather conditions, could lead to higher production and, consequently, exert downward pressure on future prices in Chicago. This expectation makes it difficult for Brazilian corn to compete in the international market, since foreign buyers rely on these reference prices.

3. Rising port costs: The increase in operating costs at Brazilian ports also impacts the competitiveness of domestic corn. High port fees, due to increased waiting times in queues, generating demurrage, make export operations more expensive, making Brazilian products less attractive to international buyers seeking tighter margins.

4. Persistent logistics bottlenecks: Brazil's logistics infrastructure faces significant challenges. The high demand for domestic transportation, especially during peak harvest periods, increases freight costs, eroding exporters' margins. In addition, cargo retention at ports, whether due to bureaucratic or operational issues (limited space and structure), contributes to the reduction of export premiums, discouraging foreign sales.

5. Unstable exchange rate scenario: The exchange rate, a crucial factor in foreign trade operations, has been showing a downward bias due to factors such as the global tariff war and capital flows. A strong real makes Brazilian commodities more expensive for buyers using other currencies, making it even harder to match Chicago prices.

   
   

Implications and perspectives:

This scenario of domestic prices that are detached from export parity has important implications for several players:

• Producers: They can benefit from strong domestic demand, guaranteeing better prices for their production in the domestic market. However, they become more dependent on this market and may lose export opportunities during times of high production.

• Industries (Feed and Ethanol): They face higher costs in acquiring raw materials, which may impact their production costs and, eventually, the final price of their products.

• Exporters: They have difficulty competing in the international market, seeing their margins squeezed by high domestic costs and the lower attractiveness of the price in dollars.

• Consumers: They may feel the impact of higher corn prices on the prices of products such as meat, eggs and ethanol.

  
  

  During the 2024/2025 harvest, the sustainability of this scenario will depend on the interaction of factors such as: the evolution of American production, the climate, Brazil's ability to optimize its logistics, exchange rate stability and the growth rate of domestic demand (especially in the ethanol sector), all of which will determine the direction of corn prices in the country.

  
  

  In short, the Brazilian corn market is experiencing an atypical moment, with domestic demand dictating the pace of prices and challenging the traditional parity with the international market.

  
  

  By understanding the factors that drive this market dynamic, it will be essential for producers, industries and the market to make strategic decisions, through close monitoring of economic and agricultural variables, which will be crucial to anticipate trends, generate results and mitigate risks in a market more influenced by domestic particularities. Did you like this article? Please like and comment.