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May 17, 2011

Corn and Cotton Competition for 2011/12 Brazilian Soy Production

As Brazilian farmers start to plan their 2011/12 crop acreage, soybean prices remain attractive, but cotton and corn prices are even more attractive. For the last several years, full-season corn acreage has been losing out to ever increasing soybean acreage in southern and southeastern Brazil, but that may change in 2011/12. Elevated corn prices now make the full-season corn crop very competitive to soybean production.

In the state of Minas Gerais for example, which is one of the major corn producing states in Brazil, corn prices are at their highest level in two years leaving farmers very pleased with their 2001/11 corn crop. According to the Agriculture Federation of Minas Gerais (FAEMG), in February of 2011, the average price of corn in the state was R$ 27.00 per sack of 60 kilos, which is nearly double the price of R$ 14.00 per sack registered one year ago. As a result, farmers in the state are selling their corn at a rapid pace to take advantage of the price. Local grain elevators are shipping out the corn immediately to southern Brazil where demand from livestock producers is very strong.

Full-season corn acreage in the state of Minas Gerais has declined for two years in a row as farmers opted to grow more soybeans, but that may not be the case in 2011/12. A similar trend may also be developing in the states of Parana and Rio Grande do Sul as well. After declining for two years, full-season corn production in Brazil is expected to rebound in the 2011/12 growing season.

Continued strong cotton prices are also expected to encourage cotton farmers to increase their 2011/12 cotton acreage as well. Brazilian cotton acreage increased 65% in 2010/11 to just over one million hectares and it is expected to increase at least 15% more in 2011/12. Even greater cotton acreage increases may be limited by a lack of farm machinery needed for cotton cultivation and a lack of needed infrastructure at the Brazilian ports to handle such a large volume of cotton. The cotton acreage in Brazil (one million hectares) is very small compared to the soybean acreage (24 million hectares), but where both crops are grown; full-season cotton production does compete with soybeans for the same acreage.

In their most recent report, the USDA estimates that the Brazilian soybean acreage will increase 3% in 2011/12. The final soybean acreage in Brazil will be dependent on the eventual corn/soybean price ratios and those prices will be dependant somewhat on the growing conditions in the U.S. over the next few months.