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Challenges of corn trading in Brazil

Anticipating price trends for corn in Brazil is not an easy task. Conditions of regional supply and demand prevail in the process of price formation, which, in turn, leads values to present different trends among producing regions in Brazil.


This scenario brings a great challenge to players in this market. Corn is a very important input for other producing chains and it is widely used for animal feeding, in the pharmaceutical, paper, textile, food and chemical industries, as raw material to produce biofuels, among other agroindustries.


Due to the importance of the cereal for costs and, therefore, for the profitability of producers and players of different production chains, the need to manage risks regarding unwanted fluctuation is evident.


Compared to soybean, international conditions affect the corn market less (although the impacts have been increasing) because, for soy, global trades of the grain and byproducts account for roughly 2/3 of the world production. Considering corn, global trades represent less than 15% of the total. As a result, in order for international price shocks to be transferred among countries, trades need to be closed, which may take a few weeks or even months.


In the domestic market, the main aspects that support regional differences among prices are transportation costs, taxation, values at ports, pace of shipments, inventories, weather and the imbalance between supply and demand in different periods of the year. 


In order to have a better understanding of regional prices, players may consider season and off-season periods and trends registered in previous years (seasonality). Due to uncertainties in production and trading, it is important to assure, in advance, prices to buy or sell a part of the production or consumption.


Over the last years, the supply growth rate has been higher than that for the domestic consumption, influenced mainly by the second season; as a result, there is a surplus that must be exported. Therefore, the Brazilian market currently has a relation with the international scenario and players search for an interaction between domestic and international values.


In this scenario, shipments influence domestic quotes significantly, mainly from the second semester onwards, when the availability in Brazil is higher. This year, specifically, the trade war between the United States and China and difficulties in the US planting may favor Brazilian exports and, consequently, boost quotes in Brazil.


An important reference for the corn market is the ESALQ/BM&FBovespa Index (Campinas – SP), used for contract settlement at B3. Players can establish bidding or asking prices when using future contracts. It is important to mention that, after the last day of trades, open contracts will be settled by B3 on the due date, by the arithmetic average over the last three days (including the due date) of the ESALQ/BM&FBovespa Index. As a way to protect themselves from price fluctuation, producers and/or demanders may establish the value.


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