Record crops and a high grain storage deficit in Brazil have pressured soybean and corn premiums to negative levels in relation to the international market, which indicates losses for the country’s production chain of R$30.5 billion (US$6.12 billion) in 2023, estimated on Thursday (4) the consulting firm Cogo Intelligence in Agribusiness.
Of the total losses, soybeans would be responsible for about R$19 billion (US$3.81 billion) and corn for R$11.5 billion (US$2.31 billion), Cogo pointed out.
The values were obtained considering the negative premiums – in the case of soybeans, the worst in about 20 years – and the shipments already made and expected for the coming months.
Infrastructure bottlenecks, which include port flow channels, have also been cited by sugar market players as risk factors for sugar exports.
The situation of warehouses in the country, which for the first time in 20 years harvested more in the summer harvest than the total storage capacity, was addressed in early January in a Reuters report, which also warned about the need for more investments to accommodate the growth of agriculture.
With the record harvest, slow sales by producers, and a storage deficit of 124 million tonnes, considering this year’s harvest estimated at 313 million tonnes, there was the formation of a “perfect storm,” noted the consulting firm’s partner-director, Carlos Cogo, during an event with journalists.
Besides the structural issue (the storage deficit), he highlighted the conjunctural factor.
“Producers sold little soybeans in advance last year.”
“When it came to harvest (this year) they had less than a third of the crop sold, the lowest volume of anticipated sales in the last eight harvests,” he said;
He recalls the slowness of business was associated with a rise in costs that interfered with the farmers’ strategy.
Cogo observed that it is natural that the premium concerning the quotations negotiated in the Chicago exchange is lower during the harvest, especially with a record harvest like the Brazilian one.
But he attributed storage a preponderant importance since farmers could hold their products in warehouses without accepting any price if there was capacity.
In April, there was a record low for premiums in Brazil, which hit -US$2.10/ bushel, with the monthly average at -US$1.90/bushel.
“That had only happened in 2004,” he said, adding that the differentials are at -US$1.50/bushel for May shipments.
“We are with negative premiums until August, something that is also not unprecedented but very rare,” he said.
He explains that the differentials get weaker to compensate for problems in loading, payment of fines for delays in shipments, and waiting time at ports, among other factors.
He said that this structural factor of the storage deficit would remain and “show its worst face in the corn harvest” – the second cereal crop arrives in the market between June and July – but it should also continue next year.
IDLENESS IN THE INDUSTRY
While the static storage capacity in Brazil has been growing at a rate of 2.8% a year, the agricultural production has advanced 5.5% in the last years, Cogo said, commenting that closing the silos/production gap is not an easy task.
The industry can produce silos to receive a little more than 5 million tonnes of grain per year, below the levels of the advance of agricultural production – considering only soybean; the crop will grow in 2022/23 to more than 20 million tonnes.
Still, the silos industry has been working with idle capacity, even after investments in recent years to expand factories, according to executives from Kepler Weber, the leader in the production of warehouses in the country.
“Today we are working around 30% idleness, competitors are working with more, there is the news of collective vacations (in the industries),” said the financial director of Kepler Weber, Paulo Polezi, citing economic issues.
“It’s a big dichotomy, the (agricultural) flows exploding and the companies with idle capacity,” he added.
According to Kepler Weber executives, Brazil would need policies that stimulate the expansion of warehouses in the long term as part of the solution to the problem.
With information from Forbes