May 21, 2010
Brazilian Government Will Start Purchasing Corn on May 25th
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
The Brazilian Minister of Agriculture recently confirmed that the first auction at which farmers will be able to sell their corn to the government will be held on May 25th. There will be a total of 10 or 12 auctions with one million tons of grain scheduled to be purchased at each auction. Sixty percent of the total purchases nationwide will be allotted to producers in Mato Grosso. Mato Grosso was given priority because of the high cost of transporting corn out of the state and the fact that approximately 3 million tons of last year's corn production is still occupying silos in the state.
The purchases will be made under the PEP program (Premium for the Storage of Products) and the government will pay the difference between the local cash price and the minimum price set by the government which is R$ 13.95 per sack of 60 kilograms or approximately US$ 3.95 a bushel. There will be two auctions held in each of the five major corn producing regions of the state. Depending on the local cash prices, the differential paid by the government may vary between R$ 2.52 to R$ 6.84 per sack (US$ 0.75 to US$ 1.95 per bushel). Each producer will be allowed to sell up to 10,000 sacks of corn or approximately 20,000 bushels to the government.
These auctions are needed because the cash price of corn is below the guaranteed minimum price set by the government in virtually all of Brazil. Brazil's domestic corn market is over supplied due to good corn yields and lackluster corn exports. If farmers in Mato Grosso were forced to sell only into the cash market, they would lose a significant amount of money on each sack of corn sold.