RS: Low corn price frustrates expectations

It's been so recently that the uproar over the high prices of corn has probably not even been erased from the memory of the people of Rio Grande do Sul. This scenario seen in the second half of 2016, however, is already in the past. With the turn of the year and the start of harvesting the new crop, the situation has also changed: this time, the discussion is about the low price of bags, which continues to fall. The outlook is not worse because a considerable portion of producers took precautions and signed prior contracts, previously almost non-existent in the crop.

According to Emater-RS, which monitors the amounts paid to producers, last week the average price of a 60 kg bag of corn reached R$ 27.67 in the State, a drop of 3.6% compared to the previous week. Six months ago, for example, bags were priced above R$ 45.00 on average, with prices found as high as R$ 53.00. The high numbers at the time excited farmers, who reversed the downward trend in recent years and, in this harvest, increased the area planted with corn. The dream may have turned into a nightmare for many.

According to the agronomist at Emater-RS, Alencar Paulo Rugeri, the current level still covers costs and allows for an average yield. Among the reasons for this are the increase in productivity and production, which ends up reducing the production cost of each bag. Among entities linked to producers, however, more than complaints, it is the defense of future sales contracts that dominates the discourse.

Chief economist at Farsul, Antônio da Luz recalls that the price rise at the end of 2016 was clearly atypical, and states that producers were warned that the numbers would be unlikely to be repeated. The reason was the failure of the second harvest in the Center-West, which left the country short of supplies, a situation unthinkable in the current harvest, with greater production. The impact of the high value, however, would have caused grain buyers, especially industries that target animal feed, to seek prior agreements with farmers, something that was previously uncommon.

What seems obvious today was not so easy to promote just a few months ago. This is because, according to Luz, while the bag was close to R$ 60.00, the contracts reached values in the range of R$ 35.00 to R$ 40.00. “At the time, our recommendation that contracts be drawn up seemed conservative, but we had to take into account that the contract was for delivery now, not last year”, argues Luz. “Whoever locked in the price is now laughing for nothing”, argues Luz. adds the economist.

Rugeri follows the same line, remembering that producers had a choice. “It’s a critical situation, but the producer had the opportunity. It serves as learning”, he argues. There is no way of knowing the proportion of farmers who used the agreements, as there is no research or monitoring on the topic, but both argue that it was a significant portion of producers. “It’s a great tool that needs to be used. It is not possible to always remain in this dependence, as the variation is very large”, argues Rugeri.

Regarding the downward trend in the value of the bag, the expectation is that the levels are already close to the floor. At the end of January, excess rain in the Southeast region would have helped to sustain prices in recent weeks, according to market consultant at Scot Consultoria, Rafael Ribeiro. As the harvest progresses, however, the market should return to lows, in the analyst's view. The expectation of a second harvest, this time without failure, could also help bring the value down a little further.

“The bulk of what was supposed to fall has already fallen,” adds Luz, who states that it is reasonable to expect further falls to occur. “But not as much as it has fallen so far”, adds Farsul's chief economist, remembering that, just since the beginning of the harvest, the bag has already depreciated by around R$ 10.00, a rate that should not be repeated.

Production chain hopes that future contract tools are here to stay

Among the lessons left by such huge fluctuations in the price of corn from last year to now, perhaps the main one is the notion of the importance of instruments that generate security for both sides of the chain. Prior sales contracts, for example, which became a reality this harvest, are seen as guaranteeing a balanced relationship between producers and buyers.

“Our desire is for it to become a routine. It is a tool capable of reassuring both ends, otherwise it will always be this seesaw, in which each time one loses”, comments the agronomist at Emater-RS, Alencar Paulo Rugeri. The cycle would have taught producers to make contracts in practice, adds Farsul's chief economist, Antônio da Luz, who questions, however, whether buyers will maintain the momentum in the next harvests.

“Industries have a more comfortable position, as they do not hold stock and count, every year, on government mechanisms to transport production from the Center-West”, comments da Luz. The economist emphasizes that he does not criticize the lower prices practiced in other countries. states, since it would be the merit of the region, but rather the subsidies given by the Union to pay for shipping the grain to Rio Grande do Sul, for example. “The price of corn in Rio Grande do Sul is balanced with the price in the Center-West plus shipping. If there is a subsidy for transport, it lowers the price here. This creates unfair competition”, he argues.

On the other hand, the executive director of the State Pig Products Industries Union (Sips), Rogério Kerber, cites another advantage in the agreement. “This reduces intermediate costs, avoiding having to store in one location, which involves loading and unloading costs, among others”, he comments. In the executive's view, the tool is important, but it does not change the fact that Rio Grande do Sul's production would be insufficient for consumption.

Regarding prices, Kerber states that they are – and will continue – based on international values. The large drop in prices, however, would not be taken advantage of by the industry as they could, due to the effects of last year. “The sector is undercapitalized, because the performance in 2016 was terrible with those unthinkable costs. There is no cash flow to build inventory”, argues Kerber, who says that sectors are applying for credit lines for this purpose.

In the coming weeks, corn trading options will be launched on the market so that producers can protect themselves from price fluctuations, announced the Minister of Agriculture, Blairo Maggi, who said he had already discussed the matter with the Central Bank and the Ministry from the farm. “It is necessary to anticipate the facts”, observed the minister.

 

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