South America Calling

In virtually his first major act as Brazil's agriculture minister, Blairo Maggi announced that the government was going to accelerate the sale of corn stocks in a bid to limit the rise in domestic prices.

The move underlines the problem that this year's spike in corn prices has caused poultry and pork producers, with most operating with negative margins.

The problem is that the government no longer has significant stocks. It has auctioned off 500,000 metric tons (mt) since the start of the year and only 900,000 mt remains. That is equivalent to around 20% of total monthly consumption.

Maggi did not specify the volume of corn that he intends to sell.

Prices have spiked because of aggressive export sales amid a devaluation of the Brazilian real over the past year and, more recently, losses to the Brazilian second-crop.

Dry weather across the center-west in April caused consultants to drastically lower forecasts at the start of the month, from near 60 million metric tons (mmt) to 49-52 mmt.

The bad news is that the weather has not much improved in May, with significant parts of Mato Grosso and Goias states, as well as parts of Sao Paulo and Minas Gerais, not receiving any significant showers.

That could mean forecasts continue to fall. We will begin to get a better idea once harvesting picks up in June.

As a result, Maggi professed to be concerned about corn supply in 2017 as well, since as much as 70% of the second-crop has already been committed for export.

Domestic prices continue around recent record levels. In Rondonopois, southern Mato Grosso, corn is quoted at R$45 per 60-kilogram bag ($7.45 per bushel), up slightly from R$42 a month ago and sharply higher than R$18 a year ago.

Inevitably, demand will have to be met by imports, principally from Argentina.

The new minister said the government would maintain the 2016-17 farm credit budget announced by Dilma Rousseff just before she was suspended as president in May. The budget totals R$202.8 billion ($57 billion), or 8% higher than last year. This subsidized funding is very important to farmers as commercial loan rates can be very high.

Alastair Stewart can be reached at astewartbrazil@gmail.com

(ES)

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