May 14, 2013

Brazilian Farmers Watching U.S. Production Very Closely

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

Brazilian farmers are going to produce a record large soybean and corn crop in 2012/13, but declining commodity prices are going to reduce their margins, especially for corn. For a second year in a row, safrinha corn production is going to be good and as a result, Brazil will produce a new record large corn crop (see earlier article). The record large corn crop is resulting in depressed domestic corn prices. In Mato Grosso the price of corn is already near the cost of production and it is expected to go even lower when the corn harvest begins in June.

Baring a weather scare in the U.S., these low corn prices are going to force the Brazilian government to ramp up their purchases of corn in order to support corn prices. The government announced last week that they will purchase 3 million tons of corn at the guaranteed minimum price which is about US$ 3 per bushel.

Due to the depressed corn prices, Brazilian farmers are expected to continue trimming their 2013/14 full-season corn acreage in southern Brazil in favor of additional soybean production. With farmers losing money on their safrinha corn crop in Mato Grosso, there has also been some talk of planting more full-season soybean varieties and then following the soybeans with a shorter maturity crop such as grain sorghum, sunflowers, dry beans, millet, canola, etc.

These other alternatives crops are much cheaper to grow than corn, but their return per acre is less as well. Some farmers think they might be able to make up the difference by planting full-season soybeans that tend to yield better than early maturing soybeans and have less risk of harvest delays due to excessive rains when the soybeans are being harvested in January and early February.

It's hard to say at this point how much the Brazilian corn acreage may decline in 2013/14 because Brazil has two separate corn crops and farmers do not have to make a decision about their full-season corn acreage until July or August and decisions about their safrinha crop doesn't have to be finalized until November or December. At this point, I am expecting lower full-season corn acreage and a hold-even safrinha acreage at best.

In the May WASDE report they estimated the 2013/14 Brazilian corn crop at 72.0 million tons compared to 76.0 million tons they are estimating for the 2012/13 Brazilian crop.

Soybean acreage in Brazil in 2013/14 is expected to increase 3-5%. The increase will come from various regions including: a shift out of full-season corn in southern Brazil, more pastures being converted to row crop production in central Brazil, and the clearing of additional land in northeastern Brazil. In the May WASDE report they estimated the 2013/14 Brazilian soybean crop at 85.0 million tons compared to 83.5 million tons for the 2012/13 Brazilian crop, which by the way, I think is a little too high.

After a steep decline in cotton acreage in Brazil in 2012/13, farmers are expected to plant more cotton in 2013/14 which could partially limit the increase in soybean acreage in Mato Grosso, which is the largest cotton producing state in Brazil. An increase in safrinha cotton acreage could also compete with safrinha corn acreage since both crops compete for the same acreage in Mato Grosso.