September 23, 2014

Brazil Gov. Subsidizing Price of Corn, Cotton, Wheat, Oranges

In a response to the general downturn in worldwide commodity prices, the Brazilian government has responded by increasing its efforts to subsidize the prices of various commodities in Brazil through its Pepro Program including: corn, cotton, wheat, and oranges. The program is designed to give producers the opportunity to sell their products at the minimum price guaranteed by the government.

The government does not actually purchase the products, rather it makes up the difference between the local domestic price and the minimum price when farmers sell their production. Farmers or cooperatives who participate in these auctions have a limited timeframe to sell their production and to present the documentation to the government. Payments are supposed to be made about six months after the auctions are conducted, but the payments have generally been delayed for more than six months.

The largest effort thus far has been to subsidize the price of 7-10 million tons of safrinha corn production especially in the state of Mato Grosso, but it hasn't been limited to just corn. The government has already conducted auctions for oranges. It has scheduled an auction on September 25th for cotton and it is working on scheduling an auction for old-crop wheat in Rio Grande do Sul and Parana.

The Brazilian Minister of Agriculture announced on Monday that R$ 150 million has been allocated for Pepro Program auctions for old-crop wheat, but the split between the states of Rio Grande do Sul and Parana has not yet been announced. The minimum price for wheat guaranteed by the government in the state of Parana is R$ 33.45 per sack or approximately US$ 6.90 a bushel. The current price of wheat in the state is in the range of R$ 30.00 per sack (approximately US$ 5.95 a bushel), which is significantly below the R$49.00 per sack it sold for twelve months ago (approximately US$ 10.10 a bushel).

The cotton auction will subsidize the price of 500,000 tons of cotton in nine states where the local market prices for cotton are below the minimum guaranteed by the government which is R$ 54.90 per 15 kilograms. Conab will conduct the auctions in nine different lots including: Mato Grosso 291,000 tons, Bahia 140,000 tons, Goias 24,000 tons, Mato Grosso do Sul 18,000 tons, Maranhao 9,000 tons, Minas Gerais 8,000 tons, Piaui 6,000 tons, Sao Paulo 3,000 tons, Tocantins 2,000 tons.

The recent downturn in commodity prices has caught many producers and government officials in Brazil by surprise and they are now scrambling to develop programs to help improve the depressed prices.