August 6, 2013

Domestic Wheat Prices Soar to Record Levels in Brazil

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

Wheat millers in the state of Sao Paulo in southern Brazil are desperate for near term wheat supplies to keep their operations running until imports from the U.S. arrive or the wheat harvest in Parana starts up in mid-September. As a result, they are offering as much as R$ 1,000 per ton for wheat that can be delivered immediately. Even at these record prices, there is little available wheat in Brazil, Argentina, Uruguay, or Paraguay. Earlier in 2013, wheat prices in Brazil were in the range of R$ 650 per ton.

A combination of factors have led to this predicament including: a reduced wheat crop in Argentina, a prohibition of additional wheat exports out of Argentina, and the recent freezing temperatures in northern Parana that damaged the early maturing wheat that would have been harvested during the month of August. The state of Parana produces about half of the wheat in Brazil and the entire crop in the state may only be down 15% due to the freeze, but the problem is that the early maturing wheat was impacted the most and that was the wheat the millers had been counting on to supply their immediate needs.

The wheat in the state of Sao Paulo was not as impacted by the cold temperatures and the early wheat harvest in the state is set to begin in about 15 days, but the entire state is expected to produce only 140,000 tons, which is not nearly enough to satisfy the demand. The first significant volume of wheat from Parana probably won't hit the market until mid-September. In the meantime, millers have turned to the U.S. in a big way to keep their mills operating.

Market reports indicate that Brazilian millers purchased 60,000 tons of hard red winter wheat from the U.S. late last week and that is on top of the 400,000 tons purchased the week before. All of this wheat is expected to ship as soon as possible to Brazil. Thus far in 2013, imports of U.S. wheat have totaled 1.2 million tons, which makes the U.S. the principal supply of wheat to Brazil following Argentina.

During the first semester of 2013, the U.S. has shipped 436,000 tons of wheat to Brazil compared to just 8,000 tons during the same period in 2012. From all countries combined, Brazil has purchased 3.4 million tons of wheat during the first six months of 2013 with Argentina leading the way at 2.4 million tons. In early 2013 Argentina still had wheat to export to Brazil, but they have since restricted any further wheat exports until their new crop comes on the market in December.

In June the U.S. surpassed Argentina as the principal supplier of wheat to Brazil shipping 211,000 tons compared to 170,000 tons from Argentina.

The 2014 wheat crop in Argentina may be even smaller than this year because Argentine farmers are expected to plant even less wheat next year. They continue to be upset by government interference in the export markets. Due to this interference, farmers in Argentina do not know what future prices will be for their grain production and they do not want to risk planting a crop only to see the government restrict exports resulting in low domestic prices.