September 18, 2014

Corn and Wheat Prices Subsidized by Brazilian Government

The Brazilian government has conducted three Pepro Program auctions for corn over the past month with a fourth scheduled for Thursday, September 18th. During the first three auctions, the price of 3.66 million tons of corn in Mato Grosso was subsidized and another 1.45 million is expected to be subsidized this week. During these auctions, the government agrees to pay the difference between the local market price and guaranteed minimum price when the corn is sold. Farmers and cooperatives who participate in these auctions have a limited timeframe to sell their corn and to submit the paperwork. It usually takes about six months to receive payment for the difference in price.

During the time when these auctions were conducted, the average market price for corn in Mato Grosso was approximately R$ 11.00 per sack of 60 kilograms or US$ 2.25 per bushel. The minimum price guaranteed by the government is R$ 13.56 per bushel or approximately US$ 2.80 per bushel. Therefore, the average subsidy paid by the government thus far has been about US$ 0.52 per bushel.

After the fourth auction is complete, approximately half of the corn sold this year in Mato Grosso will have been subsidized by the Pepro Program. During the first three auctions, approximately one third of the R$ 500 million allocated for the program had been utilized. The government had initially estimated that the program had enough money to subsidize the price of 7 to 10 million tons of corn. In 2013, the Pepro Program subsidized the price of 8.6 million tons of corn in Mato Grosso.

The Brazilian Minister of Agriculture, Neri Geller, announced this week that the government will also conduct Pepro Program auctions in southern Brazil to subsidize the price of wheat in the region. He indicated that R$ 150 million will be allocated to the program and this will complement a R$ 200 million program where the government will actually purchase the wheat for public stocks. The Minister estimates that the government will subsidize the price of 6 million tons of wheat and it will purchase outright between 800,000 to 1,000,000 tons of wheat.

After a disappointing wheat crop in 2013 (due to several freezes), farmers in the state of Parana sold their wheat for an average price of R$ 50 per sack or approximately US$ 10.30 per bushel. Prices have since declined and the average price of wheat in the state is now R$ 30.00 per sack or US$ 5.92 per bushel.

The states of Parana and Rio Grande do Sul produce more than 90% of the wheat in Brazil and the total wheat crop in 2014 is expected to 7.6 million tons. While this is much better than the 5.5 million tons of wheat produced in 2013, it is still far short of domestic needs. It is estimated that Brazil will need to import 5.5 million tons of wheat to meet the total domestic demand which would be approximately 1.0 million tons less than last year.