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Brazil’s Farmers See More Profit in Raising Soybeans

2017-18 corn acres to drop by 5%, Brazil agency reports.

SAO PAULO, Brazil-- This year’s record corn production, low prices, and already high inventories will force smaller corn acres in Brazil’s future.

In a study of crop prospects by the National Supply Company (Conab) released Wednesday, the Brazilian government predicts a reduction of area planted between 2% and 5% in the first corn crop of 2017-2018 and even recommends an even more significant area reduction, going forward.
 
“The Brazilian producer must be attentive, since it must have profitability in its productive process. Interestingly, strategically, the farmer opts for an even more significant decline in planted area, since the 2017-18 crop corn chain needs to significantly reduce final stocks,” Conab said in the study.
 
According to Conab, the corn stock could reach 25.3 million tons. “From the point of view of profitability, such a scenario would be even more worrying and would not cool the pressure on domestic prices,” Conab stated. Conab sees an even further significant reduction in corn production in the 2017/2018 season, with a harvest below 90.0 million tons. If realized, this would reduce stocks.

Profitability analysis

What should influence the decision of planting for the producer in the first harvest of 2017-2018 is profitability. “Soy is much more attractive when you look at the [Brazilian] states where corn and soybeans are competing,” Conab said in the study.
 
According to Conab, based on the parameters of cost of production of May 2017 with the last average prices in important regions in the Brazilian states of Paraná, Rio Grande do Sul, and Bahia, it is verified that corn is paying only the cost of the crop, while the soybean guarantees a good profitability for all the costs, even with the prices lower than those registered last year.
 
The exception is the region of West of Bahia (Brazilian state), where prices are higher than in the Southern Region of Brazil; corn pays the cost of production. But still in this case, corn profitability is not better than for soybeans, says Conab.

Brazil records the largest corn stock in history

The 2016-2017 corn crop leaves Brazilians in an unusual situation. According to a study by Companhia Nacional de Abastecimento (Conab), the initial crop stock was almost 8 million tons. Adding the total corn production in the 2016-2017 season and subtracting total domestic consumption, Conab’s forecast for the 2016-2017 harvest is 21.6 million tons. “It is the largest stock in the history of corn production in the country,” Conab said in a study released on September 6.

 
Conab admits that, with the low price environment for corn in the international market and in the Brazilian market, the Federal Government interferes in the market through the Minimum Price Guarantee Policy (PGPM). “Not only guarantee income to the national producer, but also unlock the commercialization that was stagnant,” says Conab.

Record production

Brazilian corn production, according to Conab, is expected to reach its highest volume, estimated at 97.2 million tonnes. This is a result of the increase in planted area in the first and second corn crop, in addition to favorable climatic conditions.
 
Brazilian corn consumption grew compared with last year and should reach 56.1 million tons, but this growth doesn’t absorb the increase in production. “It is only a recovery in the volume of demand from the animal sector, especially poultry and pork, and grain consumption for ethanol production,” Conab said.

Corn exports

Brazil expects to export 28.0 million tonnes of corn until the end of January 2018. But Conab admits challenges to achieve this forecast and delays may occur, faced with some logistical problems.
 
With such a high production of corn and high stocks, the export market will be more competitive than in previous years, says Conab. “The United States continues to be the main exporter, but it tends to lose space for the countries of South America, such as Brazil and Argentina,” Conab said.
 
In the study, Conab cites the Argentine government’s policy by Mauricio Macri that withdrew the retenciones, a tax on corn exports, a fact that stimulated production and exports. Argentina’s export expectation, according to Conab, increased from 19.6 million in the 2014-15 harvest to 28.5 million tons in the 2017-2018 season.

 

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