May 17, 2010
Brazilian Government to Start Buying Corn by End of May
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Brazil's Minister of Agriculture, Wagner Rossi, confirmed that the federal government would conduct 10 or 12 auctions at which farmers could sell their corn, rice, or dry beans to the government at a guaranteed minimum price. These auctions are scheduled to be conducted on a weekly basis with each week's total purchases estimated at one million tons of grain. Since the storage crunch is more severe in the state of Mato Grosso, that state has been allocated half of the total purchases. The first auction for 500,000 tons of corn in Mato Grosso is scheduled to take place at the end of May.
The safrinha corn production in Mato Grosso is currently estimated at 8.5 million tons, which is down from earlier estimates of 9.8 million tons. The internal demand for corn in Mato Grosso is estimated at 2.2 million tons, which means that producers would like to sell approximately 6.3 million tons of corn to the government.
The government will purchase the corn for R$ 13.98 per sack (approximately US$ 3.95 per bushel), which is significantly higher than the cash price being offered in the state. The current cash price for corn in Sorriso in central Mato Grosso is R$ 8.50 a sack or approximately US$ 2.40 a bushel. In Rondonopolis, which is located in southeastern Mato Grosso, a sack of corn is selling for R$ 10.50 or US$ 3.00 a bushel. The cash prices for corn have been slowly improving in Mato Grosso, but still very little of the state's corn production has been sold on the cash market while producers wait for the government auctions to begin.
The government has budgeted R$ 5.2 billion for these weekly auctions. Conab will be in charge of the auctions and the farmers will be paid through the program called Premium for Storage of Products or PEP. After the government purchases the corn, it is either stored in Conab's own warehouses or they pay for storage in private warehouses. The government then must subsidize transportation costs to move the corn to end users in southern Brazil or to export facilities. Either way, it is a significant cost to the government to subsidize the corn.