May 8, 2012

Brazil Government Announces Plan to Assist Wheat Producers

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

Wheat producers in southern Brazil have been asking for assistance from the federal government as a way to stimulate the production of high-quality wheat in southern Brazil. For the last several years, the domestic price of wheat in southern Brazil has been below the cost of production due to millers preferring to purchase lower priced wheat from principally Argentina. This forced farmers to either sell their wheat at a loss to local millers or to participate in government auctions where they can receive a better price from the government. Farmers do not like these auctions because of the reduced liquidity and the slow and cumbersome process.

In response to the farmer's request, the Brazilian Minister of Agriculture, Mendes Ribeiro Filho, announced yesterday in the Parana capital of Curitiba, that the government will make available R$ 430 million for the purpose of supporting the wheat prices in Brazil. This figure represented an increase of 14% compared to the resources that were available last year.

The main thrust of the program is a 5% increase in the minimum price of wheat in southern Brazil, which had not been adjusted for two years. For high-quality wheat in southern Brazil, the minimum price has been increased from R$ 477 per ton to R$ 501 per ton. In the center-west and southeast regions as well as in the state of Bahia, the minimum went from R$ 535 per ton to 552 per ton (an increase of just over 3%). These new minimums will be in effect from July 2012 to July 2013.

Wheat is the only major grain crop for which Brazil is not self-sufficient. Due to problems associated with whet production in Brazil, generally the country needs to import nearly half of its wheat consumption. Winter wheat competes for acres with safrinha corn especially in the state of Parana and safrinha corn is taking away acres from wheat for the last several years. Wheat acreage in Parana has been declining for two years while safrinha corn acreage has been increasing. The state of Rio Grande do Sul has taken over the leadership in winter wheat acreage because the climate in the state generally does not allow for safrinha corn production.