Oct 13, 2014

Brazilian Government will conduct Eight Pepro Auctions in October

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

The Brazilian government is continuing in its efforts to support prices for agricultural products in Brazil by conducting more Pepro auctions. During the month of October, there are eight more auctions scheduled for crops including: wheat, cotton, corn, rubber, oranges, and rice. These auctions will be conducted by Conab as a way to guarantee the minimum price established by the government.

Producers who participate in these auctions have a limited time after the auctions to sell their products in the local market and to present documentation to the government attesting to the price they received. The government then will reimburse the difference between the local price and the guaranteed minimum price set by the government. The reimbursements are often delayed by months, which farmers don't like, but it is still better than the possibility of selling their crops for below the cost of production.

On October 16th an auction for 160,000 tons of wheat will be conducted in southern Brazil. On October 23rd there will be an auction for cotton and corn and on October 30th there will be an auction for rubber and oranges. Also on October 23rd, public stocks of rice will be sold. One more additional auction for corn is scheduled, but no date has been announced.

Thus far, the government has spent R$ 253 million reals subsidizing the price of 5.77 million tons of corn. The total allotted for the corn program was reduced from its original R$ 500 million to R$ 300 million, so 85% of the money has already been spent. The vast majority of the corn auctions are conducted in the state of Mato Grosso where corn production costs are high and prices are low. The minimum price for corn in Mato Grosso varies by region, but the average is in the range of US$ 2.80 a bushel.

Originally the Minister of Agriculture had indicated that they intended to subsidize the price of 7-10 million tons of corn, but prices for other agricultural products fell below the minimum as well and the government was forced to cut back on the corn program in order to have money for other crops.

The Minister of Agriculture had indicated several months ago that the minimum price for corn may be increased for the 2014/15 growing season. He speculated that the minimum might be increased to the range of US$ 3.00 to 3.05 per bushel, but the Mato Grosso Soybean and Corn Producers Association indicated that the cost of production in the state is more in the range of US$ 3.30 to 3.50 per bushel. The Brazilian government has not given any indication as yet if the minimum price for corn will be increased.