May 20, 2010
Lower Safrinha Production Could Impact 2010-11 Corn/Soy Acres
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
The Brazilian corn market is starting to show a few signs of life which if it continues, could have the potential of impacting the 2010-11 soybean acreage in Brazil. The corn market appears to be responding the continued dry weather in Mato Grosso and the improving international corn prices brought on by China's corn purchases.
Dry weather lowering safrinha corn yields - The dry weather in Mato Grosso continues to take a toll on the safrinha corn crop. Regions of Mato Grosso have now been 5-6 weeks without significant rainfall. The earlier planted corn escaped most of the damage, but the later planted corn is being severely impacted. Agronomists in Nova Mutum, located in central Mato Grosso, now estimate that the corn yields will be cut by 40% or more. The early end to the rainy season came at the critical time of pollination and early ear development for the later planted corn. Obviously, the worst case scenario would be it doesn't rain any more in central Brazil. If this is the end of the rainy season, some corn fields could end up with yield losses exceeding 50% or maybe even more. The state of Mato Grosso accounts for approximately 40% of the safrinha corn planted in Brazil.
The other major safrinha corn producing region of Brazil is northern Parana and the corn in that region is rated as mostly good. Dry weather during the first half of April impacted the corn, but recent rains have stabilized the crop. The rains were accompanied by cooler than normal temperatures that slowed the development of the crop and future cold snaps could still impact the crop.
Brazilian government slow at purchasing corn at minimum price - The Brazilian government has been slow in setting up a series of auctions at which producers can sell their corn to the government at a minimum price. These auctions are the way that the government pays the farmers the guaranteed minimum price, which in Mato Grosso is R$ 13.98 per 60 kilogram sack or US$ 3.95 a bushel. The minimum prices guaranteed by the government vary by region, but they are currently higher than the cash prices for corn. The first of these weekly auctions are now scheduled to begin at the end of May.
The government has budgeted R$ 5.2 billion to guarantee the minimum prices for soybeans, rice, and dry beans. These payments can be made under two different programs. One is called PEP or Premium for Storage of Products. The other is called Pepro or Premium for Equalizing Payments to Producers. Even though cash prices for corn in Mato Grosso were below the cost of production, farmers increased their safrinha corn acreage because of the government's minimum price guarantee. Now it's up to the government to follow through on the programs.
Corn prices rising in Brazil - Corn prices in southern Brazil are starting to respond to the continued dryness in Mato Grosso and rising international corn prices resulting from China's purchase of corn. If prices continue to rise and approach the minimum price set by the government, farmers in southern Brazil would be less inclined to continue cutting back on their full-season corn acreage in favor of additional soybean production.
There is limited potential for expanded crop production in southern Brazil unless farmers switch from one crop to another such as reducing full-season corn production in favor of additional soybean acreage. That switch occurred last year and helped lead to a 6.8% increase in soybean acreage in 2009-10.
Current soybean prices are not high enough to encourage wide spread land clearing in central Brazil for additional soybean production. If domestic corn prices in Brazil continue to strengthen over the next few months, it could limit the potential for soybean expansion in 2010-11.