June 19, 2012

Super-Sized Corn Crop in Mato Grosso Results in Very Low Prices

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

The safrinha corn crop in Mato Grosso is now expected to surpass even the most optimistic estimates earlier in the growing season. A huge increase in acreage and ideal growing conditions are resulting in a corn crop that is at least 87% greater than last season. According to the Mato Grosso Institute of Agricultural Economics (Imea), the 2011/12 corn crop in the state is expected to be 13.1 million tons compared to 6.9 million tons produced in 2010/11 and unofficial estimates put the crop as high as 15 million tons. As a result of this super-sized crop, the corn prices in the state have fallen precipitously over the last two months.

The average price of corn in the state is currently R$ 13 per sack of 60 kilograms and in some cases it has fallen to as low as R$ 10 per sack. The average price across the state has fallen 18% since April and in some cases, it has fallen nearly 30%. Imea estimates that the cost of production for safrinha corn in the state is approximately R$ 13 per sack. Approximately 50% of this year's safrinha corn crop was forward contracted at much higher prices, so only about half of the corn will be sold at these lower prices. But, if the corn price does not show a significant recovery by the end of the year, it is expected that the corn acreage in the state will decline significantly in 2012/13.

Farm organizations are insisting that the government must step in to support prices by purchasing some of the excess corn at prices that are above the current market price and then transporting that corn to southern Brazil for the livestock industry or to exporters. The Brazilian Minister of Agriculture is sympathetic to their plight and has indicated that the government could purchase up to 2.5 million tons of corn in the state through its PEP Program (Premium for Marketing of Products). He has directed the department in charge of these types of programs to initiate the purchasing. The previous minimum price for corn in the state was R$ 13.98 per sack and the federal government has now reduced that to R$ 12.60 per sack.

Needless to say, farmers are upset about the reduction in the minimum price and they feel that a more fair minimum price would be R$ 15.00 per sack. They feel the higher price is needed to cover the cost of producing the 2011/12 crop and especially to cover the cost of producing the 2012/13 corn crop. Some input prices have risen 25% to 30% since the first of the year and the new minimum price set by the government (R$ 12.60 per sack) would not cover the cost of production. Estimates are that the cost of production in 2012/13 will be R$ 1,545 per hectare, or 4.6% more than the R$ 1,456 per hectare in 2011/12.

If the market price dips to R$ 10.00 per sack and if the government is only going to purchase 2.5 million tons of corn at R$ 12.60 per sack, many farmers feel it would be virtually impossible to grow corn in Mato Grosso in 2012/13.

Farmers feel that the PEP Program would not be as costly to the federal government in 2012 as it has been in previous years due to the weakening of the Brazilian currency. The Brazilian real is currently trading at 2.04 to the U.S. dollar compared to recent years when it was trading as high as 1.5 to the dollar. The weaker currency makes Brazilian corn more competitive in the world market. As a result, they are arguing that the minimum price for the corn should be increased and not decreased.