January 25, 2011

Rice Producers in Brazil Demand Gov. Action to Prop up Prices

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

Rice producers in Rio Grande do Sul are once again requesting assistance from the federal government due to extremely low domestic rice prices. Over 18,000 farmers in Rio Grande do Sul are responsible for producing 61% of Brazil's rice production, but low prices have them very concerned.

The current average domestic price for a sack of rice (50 kilograms) in Rio Grande do Sul is R$ 22.50, which is R$ 3.30 below the minimum price set by the government (R$ 25.80) and R$ 6.50 per sack below the average cost of production in the state, which is R$ 29.00 per sack. Current rice prices in the state are 44% lower than just one year ago.

Farmers are placing much of the blame for the low prices on rice imports from Uruguay, Argentina, and Paraguay. During 2010, Brazil imported one million tons of rice from these countries which helped to over supply the domestic market and drive down prices. Without the imported rice, the supply-demand scenario would have been much more in equilibrium. The strong Brazilian currency and better credit terms for international purchases encouraged end-users to import rice rather than purchasing it from domestic producers. The very same thing also happened to wheat produced in the state.

Rice producers would like to hold onto their crop for better prices, but that is going to be difficult because of the first payment on their production loans is due in January and another payment is due in April.

The farmers are requesting the government accelerate their purchases of rice through the PEP auctions. The government has only conducted one of the auctions where they purchase rice from producers at the minimum price and they have indicated that they will conduct at least one more auction. In the farmer's mind, another auction is better than nothing, but much more needs to be done or rice producers will switch their acreage to other crops next growing season, which could jeopardize the production of one of the staples of the Brazilian diet.

Currently, the price of rice in Rio Grande do Sul is about half the price of corn and some livestock feeders have started to substitute rice for corn in their rations.