March 23, 2012

Producers in Santa Catarina Suffering Double Effect of Drought

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

Most of southern Brazil continues to suffer from a prolonged drought that started in November and December. Normally droughts in southern Brazil are relatively short lived, but the drought of 2011/12 shows no signs of abating and it may end up lasting for nearly the entire growing season.

While most of the negative news associated with this drought has been about the two biggest agricultural states in southern Brazil, namely Parana and Rio Grande do Sul; producers in the smaller state of Santa Catarina may actually have been impacted more than producers in its two larger neighbors. The reason for the larger impact is the fact that many producers in Santa Catarina not only are grain producers, they are also producers of hogs, poultry, and milk. These more diverse operations have not only lost a significant portion of their grain production, their feed costs have soared as well and they are even having trouble getting enough water for their livestock operations.

The state has suffered other dry periods in 2003, 2004, and 2007, but the length of this drought has been particularly harmful. According to the Center for Agriculture Socioeconomic Planning (Cepa), the normal dry periods that occur in the state are relatively short and they occur during the months of January or February. The current drought started in December and it shows no signs of ending any time soon. Some municipalities in central and western Santa Catarina received only 10% of their normal February rainfall and the moisture situation has improved only marginally during March.

The real concern now is that the summer rainy season is starting to wind down and that the rains will end in early April without ever recharging the soil moisture or the depleted water table in the state. The colander has already turned to Fall and according to the State Extension Service (Epagri/Ciram), the forecast for the near future remains dryer than normal.

The biggest impact of the drought has been on corn yields which are expected to be down 21% in the state compared to initial estimates. Soybean production is expected to be down 13% and milk production down 17% compared to initial estimates.

A lot of the smaller independent producers either grow their own corn or purchase it locally for their livestock. These producers have seen their feed cost nearly double in recent months as domestic corn prices have risen from R$ 16 per sack earlier in the summer to R$ 30 per sack currently (US$ 7.50 per bushel using an exchange rate of 1.8 Brazilian reals per U.S. dollar).

Currently, there are 107 municipalities in the state that have declared a state of emergency due to the ongoing drought.