BRASILIA (Reuters) - Brazil’s coffee and corn prices could fall to the government’s guaranteed minimum prices if the weakening real currency reverses direction after October’s wide-open presidential election, an Agriculture Ministry official said on Friday.
That would trigger the government’s subsidy program that pays producers the difference between the market price and the guaranteed minimum, Savio Rafael Pereira, deputy secretary for agriculture policy, said in an interview.
“If the new president assumes office, and the dollar falls (versus the real), probably the price of coffee would fall quite a bit, and then it could start to hit the minimum price of coffee,” Pereira said.
“Two products run this risk - coffee and corn - if the dollar falls greatly.”
Pereira’s comments demonstrate the major economic risks presented by the October elections, the most wide open in decades. Market fears that Brazil will fail to elect a business-friendly candidate have weakened the real, which hit its lowest closing point on Thursday since its creation in 1994.
Farmers thus far have benefited by the strong dollar driving up the value of their products priced in reais.
The minimum price of coffee set by the government for a 60-kilogram bag of arabica type 6 is 341.21 reais ($81.47) in the 2018/19 season versus an average price of 424.06 reais in this month in Sao Paulo, according to government compiled data.
Minimum corn prices vary by state, with the floor for top producer Mato Grosso set at 16.71 reais per 60-kg sack. The average market price for corn in September in the city of Lucas do Rio Verde, Mato Grosso, was 26.00 reais.
Pereira said that the amount paid out in the subsidy program is usually very small and targeted, far from the level of farm subsidies seen in the United States.
“It’s not a profitable price for the producer,” he said. “You will not produce for a long time at this price, you’ll go out of business.”
The government spent about 800 million reais last year on corn subsidies after the commodity fell below minimum prices, he said.
Reporting by Jake Spring; Editing by Susan Thomas