May 19, 2015

Mato Grosso Corn Farmers have good Yields and Low Prices

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

Corn farmers in Mato Grosso are expecting a good safrinha corn crop this year and low prices due to an overabundance of corn in the state. The president of the local rural society in the city of Sinop, which is located in northern Mato Grosso, indicated that producers in the region are expecting safrinha corn yields in the range of 6,000 to 9,000 kg/ha or 92 to 138 bu/ac.

The weather has been very good the entire growing season and ironically, corn farmers are now concerned about too much rainfall. Last week, some farmers received 4 inches of rain in a 24-hour period and they are now worried that the quality of the grain could start to be compromised if this wet pattern persists.

Farmers are also worried about the declining corn prices. When they were planting their safrinha corn several months ago, the local prices were in the range of R$ 16 to R$ 17 per sack, which was enough to cover their cost of production estimated at R$ 15 per sack. The relative good price of corn earlier this year was primarily the result of a devaluation of the Brazilian currency. Domestic corn prices have now fallen to R$ 13 to R$ 14 per sack and they are expected to decline even further when the harvest is underway in June and July. It is possible the prices could get as low as R$ 10 per sack during the peak of the harvest (US$ 1.50 per bushel using an exchange rate of three Brazilian reals per dollar).

The same thing happened in 2014 and the government stepped in with a series of Pepro auctions to subsidize the price of corn, but farmers who participated in those auctions have not yet received their payments from a year ago.

The government is going to have to subsidize the price of corn again this year, but there may be problems because the Brazilian economy is now in much worse shape than it was in 2014. Additionally, President Rousseff was up for reelection last year and the government spent a lot of money helping farmers in order to win their votes. This year, the Brazilian economy is in recession and the government is laying off workers by the thousands and making severe budget cuts. Therefore it remains to be seen how aggressive they will be in subsidizing the price of corn.

All of this does not bode well for the 2016 safrinha corn crop in the state. If international corn prices remain low due to an oversupply of corn and if the Brazilian government cuts back on its price support for corn, it's hard to see how farmers in Mato Grosso will make any money growing corn in 2016. What saved them in 2015 was the devaluation of the Brazilian currency, but the devaluation may have already run its course. If that is the case, corn prices in Mato Grosso could languish below the cost of production well into 2016.