April 18, 2013

Brazilian Gov Steps up Efforts to Move Corn to Northeastern Brazil

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The Brazilian government is increased their efforts to help small livestock producers in northeastern Brazil who continue to suffer from a prolonged drought in the region. Summer rains in northeastern Brazil were disappointing and not heavy enough to produce even a meager corn crop. As a result, the government has been transporting corn into the region from central and southern Brazil as well as importing corn from Argentina in an effort to keep small livestock producers afloat.

Conab is the government agency coordinating the effort and they recently announced that they will bring into the region 170,000 tons of corn during the months of both April and May. This is up from the original 40,000 tons of corn per month that had been scheduled. Conab credits the increase to help from the Brazilian President and the Minister of Agriculture who have both made it a priority to help struggling farmers in the region. The higher volumes will allow the government to increase the number of producers that they will be able to assist.

It was a common practice in past decades for the government to stockpile corn in northeastern Brazil due to the production deficits in the region. A lot of that corn was imported from Argentina, but that program was suspended in 1995 in favor of bringing in corn from the center-west region of Brazil. In 2007, even that was terminated in favor of producing corn in western Bahia, but a two-year drought has not allowed farmers in the region to produce enough corn to meet the regional needs.

Therefore, Conab is once again purchasing corn in the center-west and southern regions of Brazil as well as resuming imports from Argentina. When the corn is purchased in Mato Grosso for example, Conab subsidizes the high cost of transporting the grain by truck to northeastern Brazil. A trip from central Mato Grosso to northeastern Brazil it is approximately 3,200 kilometers depending on the city and it costs as much to transport the corn as it does to purchase the corn.

A round trip from Mato Grosso takes 8-10 days and one of the reasons for the high cost is the fact that the trucks return empty to Mato Grosso because there is nothing to back-haul from northeastern Brazil. When a truck delivers corn or soybeans to ports in southeastern Brazil, they can back-haul fertilizers or other products, which helps to defray some of the costs. Another reason for the high transportation cost is the new truck driver law in Brazil that mandates additional rest times for drivers. The new law essentially reduced the availability of trucks in Brazil by about 20%, which resulted in higher freight rates. Actually, some of the corn destined to northeastern Brazil will be brought in by vessels shipped out of ports in southern Brazil.

During the last ten months, Conab has brought in a total of 380,000 tons of corn into the region, but going forward past the month of May, that volume may be increased to 150,000 tons of corn per month for the foreseeable future.