November 4, 2013

Brazil Government to Purchase More Corn in Mato Grosso

The Brazilian government announced that they will conduct two more auctions in Mato Grosso before the end of the year where they will purchase a total of 500,000 additional tons of corn from producers.

Thus far in 2013, the government has purchased 7.3 million tons of corn in the state in an effort to support corn prices that have fallen to below the cost of production. The state produced 22 million tons of corn in 2012/13, but it only consumes a little more than 3 million tons domestically. The remainder of the corn must be moved out of the state to exporters or livestock producers in southern Brazil at very high transportation costs. At these auctions the government purchases the corn at approximately R$ 13.00 per sack or about US$ 2.80 per bushel. Even with these efforts, the corn prices in the state averaged about R$ 10.50 per sack during October or approximately US$ 2.15 per bushel.

The government is also trying to address the longer term problem of a lack of storage space in Brazil by making more money available for the construction of additional storage units. A line of credit has been established at the Bank of Brazil and BNDES that has been earmarked specifically for storage construction. The government has promised R$ 25 billion toward this effort over the next five years. The R$ 5 billion for this year is available to borrow at 3.5% interest with a grace period of three years to start repayment and 12 years for full repayment.

Additional on-farm storage space would allow farmers to be more flexible in the marketing of their crops. It would also speed up the harvesting because they would not have to rely on contract truckers to haul the grain to the local grain elevators where there may be long lines waiting to unload during the peak of the harvest. If there are no trucks available, the harvesting process comes to a halt. It would also lower their transportation costs because they would be moving the grain during non-peak periods when freight rates are much lower.