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December 1, 2014

Low Prices and high Costs Lowers Enthusiasm for Safrinha Corn

The low prices being paid for corn and the high cost of transporting the corn to where it is needed has many Brazilian farmers reevaluating the practice of planting two crops a year in the same field – a first crop of soybeans followed by a second crop of corn. A recent study released by the Agriculture and Livestock Confederation of Brazil (CAN) confirmed what many farmers had experienced in their own operations. The study indicated that in 2014 farmers made more money if they only planted one crop of soybeans instead of a first crop of soybeans followed by a second crop of corn.

The basic problem of the two crop system was the very low prices paid for the corn and the high cost of moving the corn from where it was produced to where it was needed. Basically, farmers made money on their soybean production, but subsequently lost money on their safrinha corn production. This was especially true in the interior of Brazil, which is a very long distance from the livestock industry and the ports in southern Brazil. The study concluded that in 2014 a second crop of corn was economically viable only in center-south region of Brazil where the corn was produced either close to the centers of livestock production or the Brazilian ports.

In addition to depressed international corn prices, high transportation costs continue to be a major problem for Brazilian farmers. When farmers in Mato Grosso were harvesting their safrinha corn in June and July of this year, the price being paid for the corn in the interior of Mato Grosso was less than the cost of transporting the corn from Mato Grosso to ports in southern Brazil. When the corn was being harvested in Mato Grosso, the prices being offered to the farmers were in the range of US$ 2.00 to 2.30 per bushel while the cost of moving the corn to the port was in the range of US$ 2.50 per bushel or higher.

The Mato Grosso Institute of Agricultural Economics (Imea) reported that at the peak of the harvest, the cost of transporting the corn from Sorriso, Mato Grosso to the Port of Santos was 145% the cost of purchasing the corn in Mato Grosso. During the month of November, the cost of transporting the corn was equal to the purchase price thanks to improved international corn prices and falling freight rates.

In areas of Brazil where two crops per year is common, farmers profit margins were higher if they only planted one crop instead of two. In Londrina, which is located in northern Parana, the average producer who only planted soybeans realized profit margin of 6.2% whereas a farmer who planted a second crop of corn either had a smaller profit margin or no margin at all.

A similar scenario occurred in both Dourados, Mato Grosso do Sul, and in Sorriso in Mato Grosso. Farmers who only planted one crop had profit margins in the range of 2.5% whereas farmers who planted a second crop of corn saw smaller profits or none at all.

The popularity of a second crop of corn skyrocketed in Brazil in recent years when corn prices were at historically high levels. That is currently not the case as large corn crops in the United States have resulted in much lower international corn prices. Brazilian farmers will plant their second crop of corn in January-February-March and it remains to be seen how these lower corn prices will influence their corn planting decisions.