August 23, 2012

Record Large Corn Crop in Brazil is out of Position

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

Brazil produced a record large corn crop in 2011/12, but the corn stocks in Brazil are out of position. Surplus supplies of corn in Mato Grosso are causing farmers and grain elevators to store the corn on the ground while livestock producers in southern Brazil are begging for additional corn supplies. A severe drought in southern Brazil in 2011/12 left the region with a corn deficit which must be made up for by bringing in corn from Mato Grosso.

Corn prices in Mato Grosso are being pressured because farmers are very anxious to sell any corn that might be piled on the ground before the start of the rainy season. They also need to get some additional cash flow in order to finalize their input purchases before they start planting their 2012/13 soybean crop. The lack of storage capacity in the state has always been a concern and that was even more evident this year when farmers harvested a record large safrinha corn crop.

The problem is the cost of transporting the grain from Mato Grosso to livestock producers in southern Brazil. There are no rail lines linking the two regions so all the corn must be transported by truck at a very high cost. As a result, the Brazilian Minister of Agriculture, Mendes Ribeiro, has proposed a system of subsidies that would help pay the transportation costs.

Conab is the government agency responsible for purchasing the corn and moving it to southern Brazil, but truckers are very reluctant to work for Conab because the rates they pay are very low and they lose money on the return trip. Most trucks would have to return to Mato Grosso empty because of a lack of cargos going from that part of southern Brazil to Mato Grosso. The Minister is therefore proposing to help pay for that return trip with subsidies for the truck owners. Currently there are 80 trucks in the process of moving corn from Mato Grosso to southern Brazil, but this is only a small fraction of what will be needed to move the amount of corn that is needed.

Conab must also compete with exporters to purchase the corn, but a series of strikes and work slowdowns at Brazil's southern ports has resulted in less demand from exporters than what was originally anticipated. When the labor issues get resolved, exporters are expected to increase their corn purchases in Mato Grosso.

The Minister is also proposing the creation of a special line of credit for hog producers who are undercapitalized due to high feed cost and low hog prices. He has stated that he will do everything in his power to assure an adequate supply of corn for livestock producers in southern Brazil until the new crop of corn is harvested in early 2013.

Conab has already announced a series of auctions of government owned corn that will be held in Rio Grande do Sul and Santa Catarina. Livestock producers will be allowed to purchase 27 tons of corn per month at a cost of R$ 21 per sack of 60 kilograms (approximately US$ 4.75 per bushel).