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June 27, 2016

Safrinha Corn Situation in Mato Grosso continues to Decline

According to the Mato Grosso Institute of Agricultural Economics (Imea), the safrinha corn harvest in the state was 16.6% complete as of June 23rd. That represented an advance of 6.3% for the week and the harvest is now ahead of last year's harvest pace of 12.8%.

As the harvest advances in Mato Grosso, the news about the crop keeps getting worse. At the end of May, Imea lowered their statewide yield estimate to 83.4 sacks per hectare (77.0 bu/ac), which was 8% below their April estimate. At that level, the corn production in the state would be down 23% compared to 2014/15. The situation has not improved during June so it is entirely possible that Imea will reduce their estimate again in their next monthly report.

Representatives from the Agriculture and Livestock Confederation of Brazil (CNA) and the Center for Advanced Studies in Applied Economics (Cepea) traveled through the principal corn producing regions of Mato Grosso from June 13 to June 17 to evaluate the current condition of the safrinha corn crop. They traveled through the municipalities of Sorriso (central Mato Grosso), Sinop (northern Mato Grosso), Campo Novo do Parecis (western Mato Grosso), Primavera do Leste (southeastern Mato Grosso), and Querencia (eastern Mato Grosso).

They found that the hot and dry conditions during April and May resulted in as much as a 50% reduction in corn yields on selected properties. The safrinha corn that was impacted the most was the corn that was planted after the ideal planting window had closed on February 25th.

They not only looked at the overall production, but they also examined the financial situation of farmers in the hardest hit areas. The tight corn supplies in Brazil and the declining estimates for the safrinha corn crop have led to near record high domestic corn prices, which is resulting in a severe financial bind for many Mato Grosso corn producers.

A lot of farmers in the state forward contracted as much as 60% or more of their estimated corn production during the December-February period for an average price of approximately R$ 20 per sack (approximately $2.50 per bushel). At the time, that seemed like a good decision because it guaranteed a profit for their corn production. The current situation though is now very different.

Due to the tight corn supplies, the average price of corn in the state is now closer to R$ 33 per sack (approximately $4.50 per bushel), which makes that earlier decision now look like a poor choice. Many of the farmers in the hardest hit areas cannot fulfill their forward contracts due to their poor yields, which puts them in a real financial bind. If they purchase corn in the local market to fulfill their contracts, they would have to buy corn at R$ 33 per sack in order to sell it at R$ 20 per sack!

Realizing the severity of the situation, many municipalities in the state have declared a state of emergency as a way to try and help the farmers renegotiate their production loans and their forward contracts. The idea is that if an "official" emergency has been declared, it could give the farmers a little more barging power with their lenders and the grain companies.

The farmers would like to be able to spread put the payments on their bank debts or their contracts to the grain companies over a five-year period, thus avoiding defaults on their commitments. The Minister of Agriculture has also expressed his desire to help farmers make it through this difficult time, but he has not yet put forward any concrete proposals.