May 26, 2011

High Corn Prices Could Result in Lower Brazilian Poultry Prod.

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

Poultry producers in southern Brazil are raising the possibility of reduced poultry production during the second half of 2011 if domestic corn prices in southern Brazil remain at their current high level. The source of the problem in southern Brazil is the fact that it is a corn deficit region and much of the corn used by the poultry and swine producers in the region must be trucked in from other regions of the country.

The state of Santa Catarina, which is located in southern Brazil, is the largest poultry producing state in Brazil, but it must bring in one third of its corn from other regions of Brazil to meet the needs of the industry. The state produces approximately 4 million tons of corn per year, but it must bring in another 2 million tons to meet domestic demand. Much of that corn is trucked in from central Brazil and the shipping cost can be as high as US$ 3.00 per bushel. Unfortunately, there are no rail lines that connect the corn producing regions of central Brazil with the poultry and swine producing regions of southern Brazil, so the only option is to move the grain by truck. The high shipping costs on top of the high price for corn is putting a squeeze on producer's margins.

According to the Santa Catarina Poultry Association (ACAV), if the federal government does not step in and help with the transportation costs, poultry production in the state could decline 5% to 8% during the second half of 2011. To complicate the situation even more is the strong Brazilian currency that makes Brazilian poultry exports less competitive in the world market.

Poultry producers in Santa Catarina and Rio Grande do Sul (also a corn deficit state) are asking the government to accelerate its program of purchasing corn in central Brazil and paying the transportation costs to move it to southern Brazil where it is needed. During the prior two years, Conab has been purchasing corn in central Brazil at a guaranteed minimum price and then paying to transport the corn to end users or exporters in southern Brazil. The cost of the program has far exceeded original expectations leading critics to call for a review of all these types of programs. A similar type of program has been in existence for many years for end users in northeastern Brazil as well.

Currently, dry weather in central Brazil has corn producers worried that their safrinha corn yields will be negatively impacted and if that does turn out to be the case, the corn situation in southern Brazil could get even tighter.