Mar 15, 2010
Brazilian Farmers Worried About Talk Of Lowering The Minimum Price For Corn
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
The yields of the full season corn crop in southern Brazil are very good and even though full season corn acreage was cut significantly in southern Brazil this growing season, over 25% in the state of Parana for example, the total 2009-10 Brazilian corn crop is only going to be slightly less than last year's crop. As a result, the corn carry over is expected to grow even larger this year. There are silos all across the major corn producing states in Brazil that are still full of last year's corn crop and grain merchants are already planning to store some of this year's crop on the ground. The result has been downward pressures on prices which are already well below the minimum price set by the government. To ensure a minimum price, the federal government must buy the corn at the market price and pay the farmer the minimum price with the government picking up the difference.
There is now talk in Brasilia of lowering the minimum price for corn because it is so much higher than the current cash price. This has farmers up in arms because the minimum price was set just before they planted their 2009-10-corn crop and they contend that the government can't change the rules in the middle of the growing season. In Mato Grosso for example, the minimum price for corn is R$ 13.98 per sack or approximately US 3.90 a bushel. The average cost of production in central Mato Grosso is estimated at R$ 11 per sack or approximately US$ 3.00 per bushel. Therefore, the minimum price was established to ensure a profit for farmers who chose to grow corn.
Due to the oversupply of corn in the state, the current cash price in Mato Grosso is generally between R$ 8 and 9 per sack or approximately US$ 2.25 to 2.50 per bushel and it is not expected to improve any time soon. The reason for the talk of lowering the price is due to the financial drain caused by the program, but the Minister of Agriculture defends the program and says that he will fight hard to avoid any changes to the program.
One of the principal reasons why the government set a minimum price for corn was the fact that historically corn production in Brazil would vary widely from year to year in a boom or bust type of cycle. The government wanted a more steady supply of corn to ensure adequate supplies for the poultry and swine industries in southern Brazil. The pork industry for example has been working for many years to upgrade their production and processing facilities to meet the sanitization standards established by major importing countries. If their products become overpriced due to high corn prices, then their efforts would have been for naught.