Jan 28, 2010
Safrinha Corn Acreage In Brazil May Be Less Than Expected
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
The two states in Brazil that produce the most safrinha corn are Parana and Mato Grosso and in both of those states, the safrinha corn acreage will probably end up being less than what had been originally expected. This may be especially true in the state of Parana where the declining interest in safrinha corn production is due primarily to slumping domestic corn prices.
The domestic prices for corn in Brazil are lower now than what they were at the start of the growing season. Even then, corn prices were low enough to encourage farmers in Parana to cut back on full-season corn production (they reduced full-season corn acreage by 27% in the state) in favor of increased soybean acreage. The situation now is even worse. The combination of large U.S. corn production, disappointing corn exports out of Brazil, large carry over supplies of corn in Brazil, the inability of the Brazilian government to absorb the large corn supply, and declining world corn prices have all contributed to a depressed domestic corn market in Brazil.
The current domestic price of corn in Parana is below the official minimum price set by the government of R$ 17.46 per sack of 60 kilograms. When the market price is below the minimum price, farmers can either sell their corn on the open market and run the risk of losing money, or they can hold onto their corn and wait for the federal government to purchase their corn through a series of auctions called the PEP program.
The PEP program sounds good in theory, but in reality, it is a slow, cumbersome program where farmers have to pay to store their corn for extended periods of time while they wait for government action. If the farmers do eventually sell their corn to the government, payments can be delayed as well. This PEP program has only been in place for several years. It was initiated when commodity prices were soaring and few people thought that world prices fall enough to trigger the program. As a result, the program has been under funded, understaffed, and under performing.
The most pessimistic estimates now put the safrinha corn acreage in Parana down 20% from original expectations and the most optimistic estimates has it down 5%. In addition to lowering the safrinha acreage, Brazilian farmers will undoubtedly cut back on inputs for the safrinha corn crop as a way to reduce costs.