September 4, 2012

Poultry Producers in Brazil in Crisis due to High Grain Prices

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

While record prices for soybeans and corn are good news for farmers in Brazil, the high costs of grain has resulted in a crisis for poultry producers in Parana, which is the largest poultry producing state in Brazil. The cost of producing poultry has skyrocketed in the state, but producers have not able to pass along the higher costs to the consumers.

As a result of the increased cost of production, poultry production in the state has declined from 120 to 125 million units per month earlier in the year to 110 million units per month. Independent producers as well as vertically integrated producers have reduced their production and poultry processors have been forced to lay off workers due to the reduced production. The state has 18,000 poultry producers that generate 550,000 jobs both directly and indirectly.

The high cost of grain comes on the heels of reduced grain production in Brazil and Argentina during the 2011/12 growing season and now reduced grain production in the U.S. resulting from the worst drought in over 50 years. Since the first of the year, soybean prices in Brazil have risen 100% and corn prices have risen 43%. According to the Organization of Cooperatives in Parana, the cost of producing poultry has risen 35% this year, but poultry producers have only been able to pass along 18% of their increased costs to the consuming public.

Poultry producers in the state are now petitioning the federal government for help in the form of a special line of credit to keep their operations function and subsidies to help transport corn from Mato Grosso, where there is a surplus of corn, to southern Brazil where there is a deficit of corn. To complicate matters even more, new work rules for truck drivers are forcing drivers to accept only short hauls because they cannot generate a profit on long hauls.

Since there are no rail lines from Mato Grosso to Santa Catarina or Rio Grande do Sul, all the corn must be transported by truck at very high costs. If truckers would transport the corn from Mato Grosso to southern Brazil, they would have to return to Mato Grosso empty, driving up costs even more. The subsidies they are requesting from the federal government are for these return trips.

Mato Grosso farmers produced a huge safrinha corn crop in 2012, but much of the corn in the state piled on the ground due to a lack of trucks and the extremely high cost of transporting the corn to southern Brazil. It's another example of the inadequate infrastructure in Brazil resulting in transportation costs that are much higher than Brazil major competitors which are the United States and Argentina.