May 14, 2015

Brazilian Government Increases Minimum Price for Wheat

The Brazilian government announced earlier this week that the minimum price for wheat will be increased by 4.6% beginning in July. According to the Minister of Agriculture, the new guaranteed minimum will be R$ 34.98 per sack of 60 kilograms. The increase was not as much as farmers had hoped for, but it will help to partially defray the anticipated higher cost of producing the 2015 crop.

If the domestic price of wheat dips below the guaranteed minimum, the Brazilian government conducts a series of auctions where farmers or co-ops can sell the wheat into the local market and the government picks up the difference between the local price and the gardened minimal price.

Conab released their first estimate of the 2015 Brazilian wheat crop earlier this week and they anticipate that farmers in Brazil will plant 2.61 million hectares or 5.3% less than in 2014. The 2015 wheat production is estimated at 7.045 million tons, which is 18% more than the 5.97 million tons produced in 2014. The increased production is the result of a higher yield estimate of 2,697 kg/ha (39.1 bu/ac) compared to 2,165 kg/ha in 2014 (31.4 bu/ac). Other estimates in Brazil anticipate a slightly higher wheat production than Conab.

Conab is estimating that the state of Parana will produce 3.67 million tons (52% of Brazil's total) while Rio Grande do Sul is expected to produce 2.69 million tons or 38% of the total. The wheat is currently being planted in Brazil and harvest will occur primarily in October and November.

Brazil produces about half of its domestic needs and as a result is a major importer of wheat. Most of Brazil's imported wheat comes from neighboring Argentina, but during years when the Argentine production falls short, Brazil can import higher priced wheat from non-Mercosur countries.