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April 26, 2017

Drying Weather and Slumping Corn Prices Worry Farmers in Goias

Farmers in the state of Goias in central Brazil are concerned that the rainfall pattern is turning dryer just as their safrinha corn is entering into its important reproductive phase. The state of Goias is the fourth largest safrinha corn producing state in Brazil after Mato Grosso, Parana, and Mato Grosso do Sul. Conab is estimating that the state will produce 7.7 million tons of corn or approximately 12.5% of Brazil's 2016/17 safrinha corn production.

The summer rains seem to be ebbing as April has progressed. The rainfall during March was good, but the weather pattern has definitely turned dryer during April, which is not uncommon as the summer rainy season starts to wind down. Some areas of the state have now gone 10 days or more without significant precipitation and the forecast looks relatively dry as well. The situation is not critical as yet, but the crop will need additional rainfall as it enters reproduction.

The current situation is much better compared to last growing season when hot and dry weather reduced the state's safrinha corn production by nearly 50% to 4.5 million tons. Conab is estimating that the state will produce 7.7 million tons of safrinha corn in 2016/17.

With the prospect of a potentially record large safrinha corn crop in Brazil, domestic corn prices have declined significantly in recent months. According to the Soybean and Corn Producers Association of Goias (Aprosoja-GO) and the Agriculture and Livestock Federation of Goias (Faeg), soybean prices in the state have fallen from R$ 30.00 per sack in January (approximately $4.39 per bushel) to a statewide average of now R$ 23.00 per sack (approximately $3.37 per bushel). In the traditional safrinha corn producing region of southwestern Goias, prices are as low as R$ 21.00 per sack (approximately $3.07 per bushel).

Future prices for soybeans are even lower. The price of soybeans for delivery in August/September are in the range of R$ 17.00 to R$ 18.50 per sack (approximately $2.49 to $2.71 per bushel) depending on location, which is below the minimum price of R$ 19.21 per sack (approximately $2.80 per bushel) set by the Goias Minister of Agriculture.

As a result of the disappointing prices, farmers in Goias have been very reluctant to forward contract much of their corn. Farmers in the state have sold approximately 15% to 20% of their anticipated production.

Conab is estimating that the safrinha corn yields in the state will average 105 sacks per hectare (97 bu/ac) and that the out of pocket cost to grow the crop is in the range of R$ 1,800 to R$ 2,000 per hectare or R$ 17.14 to R$ 19.04 per sack. If land cost and depreciation are added in, the cost increases to R$ 2,500 per hectare or R$ 23.80 per sack

As you can see, the current price of corn is equal to or below the price being offered for August/September delivery. Therefore, farmers in the state will continue to be slow sellers in the hope that prices become more attractive once the rainy season ends in Brazil or adverse weather develops in the U.S. pushing prices higher.