Jul 07, 2017

Open-Air Piles of Safrinha Corn Starting to Appear in Mato Grosso

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

As the safrinha corn harvest in Mato Grosso accelerates, there are pictures circulating of trucks simply dumping corn on the ground on farms in Mato Grosso due to a lack of storage space. It is not quite as bad as it seems because central Brazil is in the midst of the annual dry season when very little rainfall is expected between June and September. Therefore, there is little risk of grain deteriorating over the next few months, but it is yet another example of the chronic lack of grain shortage in Brazil.

Brazil's second crop of corn, known as the safrinha, now accounts for approximately two thirds of Brazil total corn production and the safrinha corn production continues to get bigger year after year. Normally, the soybeans in Brazil are harvested between January and March and sold in time to free-up storage space for the safrinha corn, which is harvested between June and August. This year though, farmers have been withholding some of the soybeans from the market due to low prices and this is causing a lot of the corn to be piled outside.

According to a report in the newspaper Gazeta do Povo, the Soybean and Corn Producers Association of Brazil (Aprosoja) estimates that only 14% of producers in Brazil have enough on-farm storage for their grain production compared to 40% in Argentina and 60% in the United States. In an effort to help resolve this problem, the 2017/18 Harvest Plan released by the Brazilian government established a line of credit to construct grain storage with an interest rate of 6.5%. Even with this line of credit, building storage facilities in Brazil is an expensive and daunting proposition for individual farmers.

As an alternative to individuals building grain storage facilities, the idea of storage cooperatives is becoming more popular. Individual farmers would join the cooperative solely for the purpose of constructing grain storage facilities, which could help defray the cost of building storage facilities.

The way it works now is that many farmers do not have the option of storing their grain on-farm in order to sell at a later date when prices may be higher. They are forced to sell their grain as soon as it is harvested or pay for storage at the local grain company or cooperative. Ideally, farmers should have the flexibility to store at least 20% to 30% for sale at a later date. Currently, Brazil has the capacity to store 168 million tons of grain or approximately 60% of the total grain production.

An even better option for Brazilian farmers would be to forward contract their grain production if prices are high enough to guarantee a profit. According to Paulo Molinari, the corn analysts at Safras & Mercados, Brazilian farmers had ample opportunities in 2016 to sell their anticipated 2017 production at very attractive prices. In spite of the good prices, farmers in the state of Parana had only sold 50% of their soybeans as of June and farmers in Mato Grosso had only sold 30% of their anticipated safrinha corn production. If they had forward contracted their grain production, they could have avoided the current low commodity prices.