Brazil Farmers Take Shine to Biotech Corn

PALMAS, Brazil (DTN) -- Low prices and hefty carryover stocks have led Brazilian farmers to switch acres away from corn to more profitable soybean and cotton crops this season.

According to the latest report from Brazil's crop research body Conab, farmers this season will plant just 20.5 million acres of first-crop corn, or about 10 percent less than last season's 23 million acres, mainly due to weak local prices and higher costs compared to soybeans.

However, better seed technology and excellent weather conditions could sharply increase yields to average around 62 bushels an acre, or 5.5 percent higher than last season's 58 bushels per acre. Summer corn production, however, will fall to around 32 million metric tons (mmt), from 33.5 mmt last season, according to Conab.

"We are slightly more bearish than Conab and believe corn area could be below 20 million acres this season," said Leonardo Sologuren, corn analyst at the local Celeres consultancy, who added that corn acres in southern Brazil will be 20 percent lower as farmers switch to soybeans.

"Farmers gauge prices at planting time, rather than looking forward to harvest time," said Sologuren, "Back in August, when planting decisions were being made, the price relationship was strongly in soybeans' favor."

He said Brazilian farmers also prefer soybeans, due to greater liquidity and more options when it comes to obtaining financing and marketing.

"The majority of corn still goes to the local market, which is basically a cash market," said Paulo Martins, manager at the Fazenda Modelo farm near Palmas, the state capital of Tocantins. "Soybeans are more liquid, less risky and a higher-value crop, which means transport costs don't weigh as heavily."

According to the latest estimate from Conab, Brazil's 2009-10 corn production, including summer and winter crops, will come to around 50 mmt, down from 51 mmt last season and 58 mmt two seasons ago.

Meanwhile, early rains have helped planting progress, which was at around 84 percent of intended area at the beginning of December, compared to 78 percent at the same time last year, according to the Celeres consultancy.

"Weather conditions have been favorable in most regions," said Sologuren. "Even heavy rains in the south last month did not cause planting delays, as the bulk of fieldwork had already been completed."

In Parana, the country's largest producer of summer corn, planting is 99 percent complete and weather conditions have been excellent so far.

According to the state's agricultural research body Deral, corn area has fallen 28 percent this season, to 2.2 million acres, but yields are seen up 32 percent to 112 bushels an acre, leaving expected summer corn production at around 6.5 mmt, or the same level as last year.

In Rio Grande do Sul, the largest summer-corn producer in terms of area, farmers are planting 3.1 million acres, down 8 percent from last season's 3.4 million acres, according to the state's agricultural research body Emater. Yields, however, are seen increasing 24 percent to 64 bu/acre, while overall production should rise 26 percent to 5.1 mmt, from 4.2 mmt last season,

BIOTECH BOOST

Despite expectations of a significant improvement this season, Brazil's corn yields still lag well behind the U.S. and Argentina, mainly due to the large number of subsistence farmers in the south of the country using little to no technology.

The situation, however, is expected to change in coming years as farmers gain access to genetically engineered corn varieties approved last year by the government's biotech controller CTNBio.

Brazil's large diversity in soil and weather conditions, however, means it may take several years before GE seed varieties are available for every part of the country. The CTNBio is moving quickly, though, and has already approved five Bt corn varieties, as well as several double-stacked GE varieties. Around 40 percent of this year's summer corn crop is genetically engineeered.

"The limiting factor this season was seed availability," said Cassio Camargo, head of the Sao Paulo branch of the seed growers association, known as Abrasem. "We should see a near total move to GM (genetically modified) corn in coming seasons."

Brazil's tropical conditions mean weed and insect pressure are intense and biotech corn is expected to make a big difference to yields in coming years.

"Subsistence farmers who plant corn and then forget about it until harvest time will have the most to gain from GM corn," said Camargo. "For other farmers, it will make crop maintenance much easier, and reduce pressure from insects such as cutworms."

However, strong weed and insect pressure has led to some concerns that resistance may build up quickly, especially given that refuge areas are not compulsory and recommendations are for just 10 percent refuge, compared to 20 percent in the U.S.

Refuge areas allow for a small population of non-resistant insects to survive, and these will then breed with resistant bugs to break resistance.

"I used a small amount of GM corn last season, but still had to spray insecticide to keep bugs under control," said Mike Gretter, originally from Harper, Iowa, and farming in Brazil for the past seven years. "We don't have the cold winters here to keep insect population under control, so it may not be long before resistance builds up."

OUTLOOK

There is still a lot of uncertainty surrounding Brazil's second-crop corn, planted in January and February, and which makes up around one-third of the country's total corn production.

Government body Conab sees winter crop area steady, at around 12 million acres this season, while production is also seen unchanged at 18 mmt. It is still too early, however, to make any reliable forecasts, as production will largely depend on weather conditions during the first half of next year.

Farmers in Mato Grosso have planted a lot of short cycle beans, so the opportunity is there to increase second crop acres this season," said local consultant Joao Dias. "A lot will depend on corn prices over coming months."

Famers are under a lot of pressure to sell corn at the moment, due to lack of storage space and the imminent arrival of the new soybean crop. The government has held several buy auctions in recent months, to provide price support, but despite this the corn market has remained sluggish.

Local corn prices in Mato Grosso are around $2.60 per bushel, with more than half of last year's winter crop still in storage.

"We could see an increase of around 11 percent in planted winter corn area in Mato Grosso, but it will depend on prices recovering over the next month or so," said Sologuren, who added that Brazil's corn stocks are expected to end the year at around 6.5 mmt, compared to nearly 10 mmt last year.

"Exports have picked up in recent months, helped by delays in the U.S. harvest," said Sologuren. "The big factor, though, is the exchange rate, which makes Brazil's shipments less competitive."

The Brazilian real is currently trading at R$1.75 to the dollar, compared to R$2.45/dollar earlier in the year, but despite this, the country is expected to maintain its position as the world's second largest corn exporter, behind the U.S, and ahead of Argentina, whose crop was affected by severe drought last season.

"Traditionally, we ship more corn in the second half of the year," said Sologuren. "There has been a lot of interest from the Middle East and shipments should pass 7 mmt this year, up from 6.5 mmt in 2008."

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