Sep 27, 2010
Brazilian Government Aims to Blunt Increasing Corn Prices
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
For most of 2010, the federal government in Brazil had been concerned about low domestic corn prices and the fact that the cash prices in the interior of the country were below the cost of production, but in recent months, the situation has changed completely. Due to the drought in Russia and the subsequent increase in international corn prices, now the government is concerned about rising corn prices and their effect on livestock producers in southern Brazil.
The Brazilian government conducted a series of weekly auctions over the last several months purchasing 10.9 million tons of corn from producers mainly in central Brazil at subsidized prices that were significantly above the local cash price. The government then subsidized the cost of transporting the corn to export facilities in southern Brazil where most of the corn is expected to be exported. With rising international corn prices, now the concern is that the exporters will be able to out bid domestic livestock producers for the remaining corn stocks thus driving prices even higher.
This is a particular concern for the livestock producers in Rio Grande do Sul. Corn prices in the state are averaging about R$ 25 per sack of 60 kilograms (US$ 6.50 a bushel). New crop corn won't be available until early next year and until then, it's feared that corn prices could hit R$ 30 per sack (US$ 7.80 a bushel). In an attempt to blunt further price increases, Conab is expected to announce this week a series of auctions at which small and medium size livestock producers in the state will be able to bid on corn held by the government. The government would then subsidize the cost of transporting the corn from government warehouses to the end users. It is expected that approximately 1,000 hog producers and 400 egg producers from Rio Grande do Sul will participate in the auctions.
In addition to giving small and medium consumers the opportunity to purchase corn at reduced prices, the auctions are also expected to help stabilize the market and blunt further increases in the corn price.