December 10, 2015

Livestock Producers in S. Brazil Worried about low Corn Production

Farmers in southern Brazil continue to reduce their full-season corn acreage in favor of soybeans due to the higher returns offered by soybeans, but livestock producers in a state such as Santa Catarina are concerned because they rely on locally produced corn to sustain their livestock operations.

The reason for the switch to soybeans is very obvious, soybeans offer a much better return than corn. Traditionally, the price ratio between soybeans and corn in southern Brazil has been 2 to 1. Currently, the price ratio is 2.6 to 1 favoring soybeans. Relative to each other, soybean yields in southern Brazil are generally much higher than they are for corn giving soybeans an even greater advantage. As a result, some farmers in southern Brazil are planting 100% of their farm to soybeans for the first time.

Farmers in Santa Catarina reduced their full-season corn acreage in 2015/16 by 4.5% to 430,000 hectares while at the same time, they increased their soybean acreage by 5%. If the weather cooperates, the full-season corn crop in the state will produce 3.0 million tons, but the domestic demand for corn in the state is 5.5 million tons. Corn production in Santa Catarina is now less than it was ten years ago, while at the same time, the total corn crop in Brazil has increased 90% thanks to the tremendous increase in safrinha corn production. Unfortunately, the climate in Santa Catarina is too cold to allow for safrinha corn production.

During the same ten years during which corn production has continued to decline in the state, corn consumption by poultry and hog operation in the state has increased from 4.8 million tons to 5.5 million tons. The problem for livestock producers is that their corn supply comes from the full-season corn crop and as that production continues to decline, they are forced to truck in more and more corn from distant states such as Mato Grosso.

There is no easy way to transport corn from Mato Grosso to southern Brazil. There are no rail lines or barging operations that link the two regions, therefore all the corn must be brought in by truck at a very high transportation cost. As those costs increase, so too does the price of animal rations. Additional, Brazil is now the second largest corn exporter in the world and nearly all those corn exports come from the safrinha corn crop. So livestock producers in southern Brazil must now compete directly with exporters to obtain their needed corn supplies.