March 24, 2011

Livestock Producers in Brazil Worried About High Cost of Corn

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

Brazilian livestock producers (primarily poultry and swine) are very concerned about the rising cost of corn in southern Brazil. The poultry and swine industries are concentrated in southern Brazil in the states of Parana, Santa Catarina, and Rio Grande do Sul, but the farmers in the region have reduced their corn acreage in recent years in favor of additional soybean production. The result has been that livestock feeders in the region have been forced to bring in corn from central Brazil to meet their feed requirements. In addition to the rising price of corn, transporting the corn from central Brazil to southern Brazil is extremely expensive.

There are no rail lines or barging operations that can bring corn to the region, so it all must be trucked to southern Brazil. The state of Santa Catarina is the largest swine producing state in Brazil and second in poultry production. The corn production in the state has fallen for two years in a row forcing producers to bring in 1.7 million tons of corn from other regions of Brazil.

According to the Coopercentral Aurora Cooperative, its member affiliations must bring in 1.2 million sacks of corn per month for their livestock operations, which is the equivalent of 2,400 semi trucks per month. Fifty percent of the corn comes from the state of Mato Grosso with the remainder coming from Parana, Mato Grosso do Sul, Goias and even Paraguay. In 2010, when corn was selling for R$ 8.00 to 9.00 per sack in Mato Grosso (US$ 2.15 to 2.40 per bushel) it was costing livestock feeders in Santa Catarina R$ 20.00 per sack or US$ 5.30 a bushel. At today's prices the corn may cost R$ 28.00 to 30.00 a sack in Santa Catarina or US$ 7.60 to 8.20 a bushel.

The Coopercentral Aurora Cooperative processes thirteen thousand hogs per day with 85% destined for the domestic market and 15% destined for export. Its pork exports go primarily to Russia, Hong Kong, Ukraine, and Argentina. The cooperative processes 500 thousand chickens per day with half going to the domestic market and half exported. The cooperative would like to expand their export operations, but they are concerned that they may loose their competitive advantage if corn and feed costs continue to rise.

Cooperative officials are concerned that if something is not done to lower the cost of transporting the corn to southern Brazil, poultry and swine producers will move their operations to where the corn is produced and if that happens, and then the meat processors and their jobs will follow. That is exactly what happened in recent years when the poultry producer Perdigao expanded their operations in Rio Verde in the state of Goias and the swine producer Sadia moved some of their operations to Lucas do Rio Verde in Mato Grosso.

According to livestock officials, one potential solution to this problem would be to build a railroad linking central Brazil where the corn is produced to southern Brazil where the corn is consumed. The proposed railroad is being called the "Corn Railroad". They feel such a railroad would cut in half the cost of corn produced in Mato Grosso and shipped to Santa Catarina. Such a railroad is in the talking stages only and no serious proposal has been put forth.