March 6, 2012

High Corn Prices Stimulate Increase Corn Acreage in Mato Grosso

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

Decisions made by farmers and livestock producers are based on economics regardless if they are in North America or South America. Just as high corn prices are expected to stimulate an increase in 2012 U.S. corn acreage (projected at 94 million acres) to levels not seen since the Secord World War, farmers in Mato Grosso also greatly increased their 2011/12 corn acreage due to high corn prices.

The decision of farmers in Mato Grosso and Parana to increase their 2011/12 corn production was made in September and October of last year when corn prices surged at the same time that the Brazilian currency weakened for a short period of time. During approximately a two week period at the end of August in 2011, the combination of those two factors allowed farmers in Mato Grosso and Parana (the two leading safrinha corn producing states in Brazil) to forward contract their anticipated safrinha corn production for record prices.

Many farmers took advantage of the narrow window and contracted approximately 50% of their anticipated corn production. Farmers in Mato Grosso who sold their 2010/11 corn for R$ 11 per sack were able to contract their anticipated 2011/12 production at R$ 23 per sack (approximately US$ 6.15 per bushel).

With profits locked in and money in hand, they then proceeded to purchase enough inputs such as seed, chemicals and fertilizers, to expand their corn acreage by 30%. The full-season corn acreage in the state increased by 70% from 62,000 hectares in 2010/11 to 105,000 hectares in 2011/12. The biggest increase though was for the safrinha corn acreage that increased 28.5% from 1.8 million hectares to 2.3 million hectares.

The expectation for good profits growing corn was so great that some farmers in the state planted full-season corn in place of soybeans, but safrinhaMS corn acreage still represents 95% of the corn planted in Mato Grosso.

While high corn prices may be good for the producer, they drive up the costs for the livestock producer that depends on corn to feed his animals. Fifty percent of the cost of growing poultry in the state is due to the price of corn. The high corn prices in Mato Grosso drove up production costs by 30% and lowered profit margins from 20% to 22% to 12% to 15%.

Feedlot operators in the state also felt the pinch of high corn prices which caused them to rethink their operations. One of the larger feedlot owners in the state reduced the number of head in one of his operations from 17,000 to 9,000 due to the high feed costs.

While the international prices of corn are lower than they were last fall, the drought in southern Brazil greatly reduced the 2011/12 full season corn crop thus increasing the demand for corn from Mato Grosso to fill the void. As a result, domestic corn prices in Brazil are expected to remain strong and Brazilian corn acreage could increase once again in 2012/13.