March 23, 2016

Brazilian Millers Importing Paraguayan Wheat

Brazilian farmers always have problems producing enough wheat to meet the domestic demand in Brazil and 2015 was no exception. The 2015 Brazilian wheat harvest was very disappointing due to the poor quality grain resulting from heavy rains during harvest. As a result, Brazil produced only enough wheat to satisfy half the domestic demand forcing the country to import wheat from neighboring countries and the United States.

This year, Brazilian wheat millers are importing large quantities of wheat from Paraguay. According to the consulting agency Trigo & Farinhas, during the month of February Brazil imported 78,668 tons of wheat from Paraguay compared to 11,550 tons of wheat from the United States (more than six times more). For the period from August 2015 to July 2016, Brazil is expected to import 638,000 tons of wheat from Paraguay compared to 268,000 tons of wheat from the U.S.

The wheat produced in Paraguay in 2015 was of excellent quality and the wheat is arriving at millers in southern Brazil at a cost below what it would take to purchase Brazilian produced wheat, which by the way is of lower quality this year. Certainly the wheat from Paraguay is cheaper than wheat from the United States.

There are also logistical advantage for importing wheat from Paraguay. Paraguay is right across the border from southern Brazil, so transportation costs consists only of trucking the wheat a relatively short distance. Millers can also purchase smaller quantities from Paraguay. The minimum quantity that can be purchased from Paraguay is 1,000 to 2,000 tons, whereas from the United States, the minimum quantity is 15,000 tons.

If the American wheat arrives by vessels at Brazil's southern ports, there are additional costs incurred in transporting the wheat into the interior of Brazil. American wheat would probably only be cost competitive if it was imported into northeastern Brazil. It is cheaper to import wheat into northeastern Brazil than it is to pay for trucking the grain from southern Brazil to northeastern Brazil.