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July 31, 2018

Flower Prices Increase in Brazil due to Higher Freight Rates

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

In Brazil almost everything moves by truck, so when freight rates increase, the increased costs are passed on to consumers. That apprears to be what is happening now with wheat and flower. The wheat trade group, Abitrigo, estimates that freight costs for the wheat sector increased 18 to 25% after the new freight rates were imposed following the resolution of the truck driver strike at the end of May.

Brazil needs to import about half of its domestic wheat needs, so the higher freight rates are being reflected in the cost of transporting the imported wheat to millers in the interior of the country. Abitrigo estimates that flower prices will increase at least 8% due to the increased transportation costs alone.

Through the month of June, Brazil had imported 3.2 million tons of wheat with 3.0 million tons coming from Argentina. Conab is estimating that Brazil's wheat imports in 2018 will total 6.5 million tons and that the vast majority of the wheat will come from Argentina.

The price of imported wheat in May was in the range of $270 to $280 per ton, but it has since declined to $230 to $240 per ton. In May there was still uncertainty concerning the wheat acreage in Argentina and the weather during the growing season. Since then, the weather has been beneficial in Argentina and thus the decline in prices.

The Buenos Aires Grain Exchange estimates that Argentine farmers will plant 6.1 million hectares of wheat in 2018 compared to the 5.7 million hectares planted in 2017. The wheat crop is 96% planted and the current condition of the wheat crop is reported to be good.