War in Ukraine boosts corn and wheat exports from Brazil, dries up supplies

The surge in international corn and wheat prices due to the war between Ukraine and Russia created a favorable market condition for exports of these cereals from Brazil, with the potential to tighten the supply of both commodities in the country, according to analysts and operators in the sector.

While business is sluggish between Brazilian producers and processors, with buyers in local industries reluctant to accept the reflection of a global rise of more than 30% in wheat and around 10% in corn since the start of the war, exporters and importers have closed deals to guarantee offers, with the help of the still strong exchange rate that facilitates transactions.

Brazil is a major corn exporter and may once again be the second largest in the 2021/22 season, surpassing Argentina, according to the USDA (US Department of Agriculture), if the second crop of the cereal proves to be good.

On the other hand, the conflict in Ukraine, the world’s fourth largest corn exporter, raises fears about shipments from the Eastern European country.

“About 500,000 tons of corn were traded for export in Paraná, at higher prices than the domestic market can afford,” said analyst Luiz Pacheco, from the consultancy T&F, citing deals from the last week.

According to him, the market was already tight after the failure of the first corn crop “before the demand coming from the war”.

“Now it must get worse…”, he said.

A broker operating in Paraná, who spoke on condition of anonymity, confirmed such export deals, saying they are for shipments in March and April.

For StoneX analyst João Pedro Lopes, the local industry is reluctant to accept to pay the valuations reflected in the international market, considering that corn is already at levels close to historic highs in the country.

So much so that the quotations in the domestic market have changed little in relation to the valuations of the Chicago stock exchange, which reached a maximum since 2012, in the case of corn, and the highest value in 14 years, for wheat.

On the side of Brazilian cereal exports, prospects are more favorable, said the expert.

“The expectation of an increase in corn exports is with the off-season harvest, in the last harvest there was a volume well below average. And this year the expectation is that Brazil will have the strength to resume this more relevant role among exporters”, he commented. him, adding that the crop is going well at the moment.

StoneX estimates exports of 40 million tonnes in 2021/22, nearly double what was seen last year, when drought and frost broke the harvest.

REPETITION IN WHEAT

“The domestic market has stopped waiting for some accommodation in prices, but I think it’s difficult, while this war lasts… And I think it will go a long way,” added Pacheco.

“In Rio Grande do Sul alone, over 100,000 tonnes of wheat were traded (last week), seriously compromising domestic availability and mill margins.”

With that, the consultancy T&F revised from 2.5 million to 2.7 million tons the estimate of wheat exports from Brazil in the period 2021/22 (August/July).

Most of this volume has already been dispatched, considering that from December to February, the country’s shipments totaled around 2 million tons of cereal, double the volume of the whole of last year, according to government and private sector data.

Brazil is one of the largest global wheat importers. But after a record harvest in 2021 and a favorable exchange rate, it closed deals to export volumes never seen at the end of last year, and these new transactions were made recently.

“The price of Brazilian wheat was very competitive, with the dollar on the rise and the domestic market limp, ended up having this greater demand for export”, added Lopes, from StoneX.

Pacheco believes that wheat will only be available for trading in the country until mid-April at the most, and that Brazil will have to rely basically on imports for the rest of the year until the new crop arrives, around September.

For the president of Abitrigo (Brazilian Wheat Industry Association), Rubens Barbosa, Brazil lives a free market, which provides exports in situations like these, but the increase may stimulate the planting of the next crop in the coming months, he defended .

Barbosa also said that the Brazilian industry is cautious while using its stocks, and should only resume purchases at the end of the month. On passing on costs to the consumer, he said that each mill has its own policy.