Aug 07, 2014

Announcement of Pepro Program Raises Corn Prices in Mato Grosso

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The Brazilian Minister of Agriculture has announced that 90% of the R$ 500 million reals allocated to the 2014 Pepro Program would go to states in the Center West region of Brazil – Mato Grosso, Mato Grosso do Sul, and Goias. The remaining funds would be allocated to states in northeastern Brazil.

The Pepro Program is a way to subsidize the price of corn allowing farmers in Brazil to receive the difference between the market price and the guaranteed minimum price set by the government. The minimum price for corn varies by region, but in central Mato Grosso for example, it is set at R$ 13.54 per sack of 60 kilograms or approximately US$ 2.80 per bushel. The government feels that the R$ 500 million reals allocated to the program will be sufficient to subsidize the price of 7-10 million tons of corn.

Prior to the announcement of the Pepro Program, the domestic corn prices in Mato Grosso had been much lower than the minimum price due to the excess supply, but since the Minister announced that the auctions for the Prepo Program would start by August 15th, domestic corn prices in Mato Grosso have been rising. In the cities of Sorriso and Sinop in central and northern Mato Grosso respectively, corn prices had fallen to R$ 9.50 a sack (approximately US$ 2.00 a bushel), but they have since recuperated to R$ 11.00 a sack or approximately US$ 2.27 a bushel.

Many buyers had been comfortable offering very low prices for corn and purchasing their supplies “hand to mouth” due to the excess supply of corn during the peak of the corn harvest. Now that the government has announced the details of the Pepro Program, they have been increasing their offering price in order to compete with the minimum price set by the government.

A recent survey by Noticias Agricolas indicated that corn prices in Tangara da Serra in western Mato Grosso have now risen to R$ 13.00 per sack (approximately US$ 2.70 a bushel). In Jatai in southern Goias corn prices are now R$ 16.00 per sack (approximately US$ 3.30 a bushel) and in Sao Gabriel do Oeste in northern Mato Grosso do Sul corn prices are now R$ 17.00 per sack (US$ 3.50 a bushel).

The recent weakening of the Brazilian real compared to the U.S. dollar has also supported corn prices in Brazil. The Brazilian currency traded earlier in the week at 2.28 reals per dollar or approximately 1% weaker than the previous week. A weaker currency makes Brazilian corn more competitive on the international market.