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May 1, 2017

Brazil Gov. to Subsidize Corn Prices in Mato Grosso this Week

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

The Brazilian government is going to conduct three programs this week with the goal of aiding corn producers in the state of Mato Grosso who are concerned about very low domestic corn prices.

On May 4th, Conab will conduct three electronic auctions designed to subsidize corn prices. The first will be options contracts offered by Conab. Conab will offer 7,400 options contracts for farmers to sell corn produced in 2016/17 to the government at the price of R$ 17.87 per sack (approximately $2.60 per bushel). Farmers will have the right to exercise the option until September 11th. Individual farmers may participate in the program or they may participate through their cooperative.

Conab will also conduct the auction of 200,000 tons of corn through the Prepo program which is designed to aid corn sellers. The government will guarantee the minimum price of R$ 16.50 per sack (approximately $2.42 per bushel) when farmers prove they have sold their corn to authorized purchasers which includes: poultry, hog, cattle, eggs, and fish producers, animal feed manufactures, manufactures who produce human food, or commercial operations who will then sell the corn to authorized purchasers.

The farmers will then have a certain number of days (usually 10 days) to verify the sale. The government will then pay for the difference between the local price and the minimum price. If the minimum price is R$ 16.50 per sack and the farmer sold his corn for R$ 13.50 per sack, the government will pay the difference of R$ 3.00 per sack. The one big problem with this program is the fact that farmers may have to wait many months for reimbursement.

The third action the government will take will be the auction of 200,000 tons of corn through the PEP program, which is designed to aid corn buyers in regions of Brazil where there is a corn deficit. Basically, there is too much corn in Mato Grosso and there is too little corn in northeastern Brazil and the PEP program is designed to help move corn from Mato Grosso to northeastern Brazil.

This program is designed to subsidize the purchase, transportation, and marketing of corn in corn deficit regions of Brazil, such as northeastern Brazil. This program will guarantee that small family farmers in northeastern Brazil will be able to purchase corn for their small livestock operations at the minimum price set by the government. In these regions, the minimum price is always lower than what it would cost to purchase the corn on the local market. One problem with this program is that farmers are limited to how many sacks of corn they are allowed to purchase at the reduced price.

In order to participate in these programs, farmers and cooperatives must pre-register in the National Registration System of Rural Producers (Sican), which is available on Conab's web site.

All of these programs are losing propositions for the Brazilian government. The three programs that will be conducted this week are expected to cost the Brazilian government R$ 800 million. These programs will be helpful, but they will offer limited benefits to farmers in Mato Grosso because they only impact a small amount of corn compared to the 26 million tons of corn expected to be produced in the state.