March 24, 2016

Tight Supplies Result in Record High Corn Prices in Southern Brazil

The combination of reduced full-season corn production and record corn exports has resulted in a very tight supply of corn for the livestock industry in southern Brazil and record high domestic corn prices. According to the Center for Advanced Economic Studies (Cepea), the price of corn in Campinas, Sao Paulo is approaching a record R$ 50 per sack (US$ 6.00 to 6.50 per bushel depending on the exchange rate).

Brazil's currency has devalued significantly over the past year making Brazilian corn much more competitive in the world market. This has resulted in record high corn exports from Brazil. Just during the first two months of 2016, Brazil exported 7.1 million tons of corn at a time when traditionally corn exports diminish. This has forced livestock producers to compete with exporters for the dwindling supply of available corn. The tight supply is only going to be resolved when the safrinha corn crop starts to be harvested in late May and early June.

Until then, livestock producers in southern Brazil are being forced to import corn from neighboring Argentina and Paraguay to fill the void. The director of the Hog Producer Association of Rio Grande do Sul (Sips), Rogerio Kerber, feels this is an untenable and the federal government needs to address this situation through a change in governmental policy. The current cost of corn in southern Brazil is so high in fact that some independent poultry producers have decided to suspend production until the price of corn declines, which will only happen with the onset of the next safrinha corn harvest.

He has put fourth some suggestions including increasing the amount of rural credit made available for farmers in southern Brazil to produce corn. One proposal is to make the credit available only if a farmer plants at least one third of his land to corn and no more than two thirds of his land to soybeans. He feels that producing enough corn locally for the livestock industry is far superior to importing corn from neighboring countries or bringing in corn from Mato Grosso at very high transportation costs.

The livestock producers also feel the federal government could do a lot more to relieve the situation by making more credit available to build grain storage, improving the highway system to reduce transportation costs, even building a railroad to bring in corn from central Brazil. Local authorities are concerned that if this situation persists, livestock production could start to migrate to where the corn is more readily available in central Brazil resulting in job losses in southern Brazil.