April 28, 2011

Farmers in Parana to Plant 30% less Wheat in 2011

Even though wheat prices worldwide are strong and there is a possibility of problems during the Northern Hemisphere growing season, farmers in the southern Brazilian state of Parana are planning on reducing their 2011 wheat acreage due to the poor domestic price structure.

Farmers in the state are wrapping up the last of the soybean harvest and will be starting to plant their wheat during the month of May. Indications are that they will reduce their 2011 wheat acreage by 30% compared to 2010, which was already 10% less than in 2009.

The principal problem with wheat production in Parana and the rest of southern Brazil is the lack of liquidity for the crop. The government sets the minimum price for wheat in Brazil, but it is not high enough to pay production costs. Additionally, farmers remember last year when the federal Government reduced the minimum price by 10% just as farmers were beginning to plant and they had purchased all of their inputs and they are concerned it could happen again. Planting wheat also delays the planting of corn or soybeans and farmers would prefer to get a quick start planting these two crops, which are much more profitable.

The wheat grown in Parana is the type used for bread and the minimum price set by the government is R$ 28.62 per 60-kilo sack, but farmers in central Parana estimate their production costs at R$ 30.00 per sack.

An additional problem for wheat producers is the strong Brazilian currency which makes it cheaper to purchase wheat from Argentina or Uruguay than from local producers. Since the neighboring countries are very close, transportation costs are not a significant issue. There are also more favorable credit terms for importers when they purchase their supplies from other countries.

As a result of the poor domestic price structure, wheat stocks have been accumulating in Parana. The Department of Agriculture in Parana estimates that there is still in the hands of the farmers almost one million tons of wheat in storage, which is the equivalent of 28% of last year's production. In government hands there is another half a million tons just in Parana. These publically owned stocks have been accumulating for the last three years as the government tried to auction off the grain with limited success.