January 6, 2011

Brazilian Millers Prefer Imported Wheat to Domestic Supplies

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

To the dismay of wheat producers in southern Brazil, Brazilian millers prefer to import wheat from Argentina, Paraguay, Uruguay, Canada, or even the United States in order to supply their operations instead of purchasing locally grown wheat from Brazilian farmers. The southern states of Brazil produce more than 90% of all the wheat grown in Brazil, but farmers in the region have only sold 35% of their 2010 production due to low domestic wheat prices. Since September, the domestic price for wheat in Parana has averaged R$ 24.80 per sack of 60 kilograms, which is significantly below the recommended minimum price set by the government which is R$ 28.62 per sack.

The reasons for the preference for imported wheat include: a very strong Brazilian currency which makes imported wheat cheaper, low transportation costs because the wheat can be just trucked across the border, and better credit terms for the purchase of imported wheat.

The current situation is contrary to the stated goal of the government of becoming self sufficient in wheat production. Wheat is the only major food item that must be imported into Brazil and the government set the minimum price for wheat at a high level to encourage increased production. Due to the strong Brazilian currency, imported wheat is priced below the minimum price, so millers are shipping in imported wheat. Farmers do not want to sell into the domestic market at prices below the government's minimum, so the only way to get that minimum price is to sell to the government. As a result, farmers are petitioning the government to set up a series of auctions at which farmers can sell their wheat to the government just like they did for safrinha corn produced in central Brazil

Brazil only produces about half of its domestic wheat needs and it usually imports the remainder from Argentina if that country has enough wheat to meet their needs and Brazil's as well. Between January and November, 5.8 million tons of wheat were imported into Brazil. During the August-November period, wheat imports were 29% higher than during the same period in 2009. While wheat imports were surging into Brazil, domestic producers were sitting on silos full of unsold wheat.