February 24, 2016

Livestock producers in Santa Catarina want Relief from high Corn Prices

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

Livestock producers in the state of Santa Catarina in southern Brazil are asking the state and federal governments for assistance to combat high corn prices that are significantly harming their operations. They were in a similar situation in 2012, but then the corn shortage was caused by a drought which reduced corn production. This time, the corn shortage is being caused by record large corn exports from Brazil.

Santa Catarina cannot produce enough corn to meet the needs of its livestock industry, so the corn must be brought in mainly from the state of Mato Grosso. Santa Catarina only plants 1.2% of Brazil's corn crop yet it is Brazil's largest hog producer, it is the second largest poultry producer, and it is the fifth largest milk producer.

The corn acreage in the state continued to decade long decline this growing season by falling another 8%. When farmers were deciding what to plant last August and September, corn prices were low in the range of R$ 22 to R$ 23 per sack. At that price level, farmers would have had to produce at least 150 sacks per hectare (140 bu/ac) just to break even. As a result, farmers opted to plant more soybeans instead due to the better profit prospects for soybeans.

After the planting decisions were finalized, the Brazilian currency devalued significantly making Brazilian corn much more competitive in the international market and the result has been record levels of corn exports from Brazil.

As a result, livestock producers in the state are paying in the range of R$ 38 to R$ 44 per sack of corn or nearly double what it was last year. At these prices, hog producers in the state are losing money. The president of the Santa Catarina Hog Producers Association estimates that producers are now losing R$ 50 for each hog sent to market.

The state government is trying to help livestock producers by offering to issue a two-month wavier of the 12% ICMS tax that is imposed on any pork products produced in Santa Catarina but sold in another state. They have also offered to give a credit of 8.4% on the ICMS tax imposed on corn coming into the state from another state.

The Santa Catarina Poultry Producers Association has asked the federal government to help be subsidizing the freight costs for trucking bring in corn from the west-central part of Brazil. To meet the demand in the state, more than 100,000 truck of corn will have to be brought in over the next year.

More long term, the Secretary of Agriculture for the state of Santa Catarina already has programs in place with low interest loans for the construction of grain silos and subsidies available for the purchase of seed and fertilizers.