August 23, 2013

Brazilian Government Announces Additional Corn Purchases

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

The Brazilian Minister of Agriculture announced another auction scheduled for next Tuesday where the government will purchase an additional 1.5 million tons of corn from producers or cooperatives at the minimum price stipulated by the government. The priority will be to purchase 1.3 million tons of corn from Mato Grosso and another 200,000 tons of corn from Mato Grosso do Sul and Goias.

These auctions are an attempt to support corn prices especially in the center-west region of Brazil where corn is currently selling at prices that are below the cost of production. The government is subsidizing the producer by paying the minimum price which is R$ 13.00 per sack (approximately US$ 3.00 a bushel) compared to market prices in the state that have been as low as R$ 9.00 to R$ 10.00 per sack recently or approximately US$ 1.90 to 2.00 per bushel.

Up until this point in 2013, the government has purchased 4.83 million tons of corn at a cost of R$ 264 million and the government has indicated that they are prepared to spend R$ 700 million on corn purchases. If they carry through on these plans, the government may purchases up to 12 million tons of corn in 2013. The state of Mato Grosso is expected to produce a little more than 18 million tons of safrinha corn.

The corn harvest in Mato Grosso is nearly complete and farmers have sold approximately 56% of their anticipated corn production. They have been reluctant to sell their crop due to very low prices and the government's announcement of more auctions is very welcomed news since the vast majority of corn sold thus far has been to the government.

The other big safrinha corn producing state is Parana and farmers in the state have already harvested more than half of their safrinha corn crop. The safrinha corn crop in Parana is expected to set a new record in spite of losses from heavy rains in June and freezing temperatures at the end of July. Total production in the state is estimated at 10.6 million tons which is slightly less than one million tons lower than what had originally been estimated.