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November 30, 2020

Higher Corn Prices in Brazil could Compensate for Lower Yields

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

Farmers in Mato Grosso are concerned that they will be planting their 2020/21 safrinha corn later than normal due to the delay in planting their soybeans, but strong corn prices are expected to help compensate for any potential lower yields. Normally, they start planting the safrinha corn in early January, but this year the main planting is not expected to start until the second half of January.

The cost of producing the 2020/21 safrinha corn crop in Mato Grosso is expected to be higher than the 2019/20 crop due mainly to an increase of 7.4% in the cost of fertilizers according to the Mato Grosso Institute of Agricultural Economics (Imea). Since most of Brazil's fertilizers are imported, the devaluation of the Brazilian currency in early 2020 resulted in higher costs for the imported fertilizers.

Imea is estimating the cost of production for the 2020/21 safrinha corn crop at R$ 2,631 per hectare or approximately $200 per acre. Therefore, Imea estimated that a farmer in the state needed to receive R$ 21.18 per sack of corn to cover his costs or approximately $1.81 per bushel.

Last week, the average spot price for corn in the state was R$ 64.36 per sack or approximately $5.51 per bushel. In November of 2019, the average spot price for corn in the state was R$ 29.99 per sack or approximately $2.57 per bushel. Therefore, the price of corn in the state is up 210% compared to a year earlier.

Corn prices are so strong in Brazil due to the very tight corn supplies and the fact that dry weather is negatively impacting the full-season corn crop in southern Brazil. The full-season corn crop accounts for only about one quarter of Brazil's total corn production. The full-season corn will start to be harvested in January and February. The safrinha corn crop will account for about three quarters of Brazil's total corn crop and the safrinha corn will start to be harvested next June.

Farmers in Mato Grosso have forward contracted over 50% of their anticipated 2020/21 corn production for prices more in the range of R$ 40 to $ 45 per sack (approximately $3.40 to $3.80 per bushel). Even at those lower prices, farmers are expecting to make hefty profits on their 2020/21 corn production.