April 24, 2017

Brazilian Government to Subsidize Price of Corn in Mato Grosso

Farmers in Mato Grosso are expected to harvest 26.5 million tons of safrinha corn according to the Mato Grosso Institute of Agricultural Economics (Imea) and they have forward contracted 38.7% of their anticipated corn production. The average selling price thus far has been R$ 21.85 per sack (approximately $3.20 per bushel), but most of those sales were forward contracted several months ago and corn prices have fallen significantly since those sales were completed.

Over the past month corn prices in the state have declined 7.7% and currently they are in the range of R$ 17 a sack (approximately $2.50 a bushel), but there is speculation that they could fall as low as R$ 10 per sack during harvest, which should start in June (approximately $1.50 per bushel). The minimum price of corn guaranteed by the government is R$ 16.50 per sack (approximately $2.41 per bushel).

The Brazilian government realizes that corn prices will be below the guaranteed minimum so they announced last week that R$ 800 million has been made available to help subsidize the price of corn. The federal government authorized an options contract for one million tons of corn in Mato Grosso at R$ 17.87 per sack (approximately $2.62 per bushel) at a cost of R$ 300 million to the government. The program would be operated by Conab.

The government also announced that another R$500 million will be made available to conduct auctions under the Pepro and/or the PEP programs. With the Pepro or PEP programs, the government will guarantee the minimum price of R$ 16.50 per sack ($2.41 per bushel). The current market price is basically the same as the minimum price guaranteed by the government and it is expected to decline further when harvest begins. Therefore, there should be a lot of interest in participating in these government programs.

According to the Brazilian Ag Policy Secretary, the goal of these programs is to give a signal to farmers in Mato Grosso what the future price of corn might be before the harvest begins.