October 28, 2011

Brazilian Wheat Millers Prefer to Import Wheat

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

As Brazilian farmers harvest their 2011 wheat crop, their frustration over low prices continues to mount due to difficulties in finding buyers for their grain. For the second year in a row, the wheat millers in Brazil prefer to buy cheaper wheat from Russia, Ukraine, or Kazakhstan rather than paying higher prices for Brazilian wheat, which is of lower quality compared to the imports.

According to the Center for Advanced Economic Studies (Cepea), the prices being offered for Brazilian wheat are not high enough to cover the cost of production for the producers. Both the yield and the quality of Brazilian wheat are lower than normal this year due to a series of frosts earlier in the growing season and heavy rains during the wheat harvest.

In the state of Parana, which is the largest wheat producing state in Brazil, the wheat harvest is approximately 70% complete and the average yield thus far is about 2,100 kg/ha (32 bu/ac), whereas it is estimated that a yield of 3,000 kg/ha (46 bu/ac) would be necessary to cover production costs. Yields in Rio Grande do Sul, which is the second largest wheat producer, are expected to be better, but still not high enough to cover the production costs.

As a result of the low domestic prices, very little of the recently harvested wheat has been sold. In the state of Parana, only 15% of the wheat has been sold compared to 25% last year at this time. Farmers in the state are finding it difficult to sell their wheat even at a loss due to the lack of offers to buy the Brazilian wheat.

Wheat producers do not hold out much hope that things will improve any time soon. When the cheaper European wheat runs out, the wheat harvest in Argentina will be in full swing. Wheat yields in Argentina are expected to be down this year, but the country is still expected to produce 12.6 million tons of wheat and Argentina is the principal supplier of wheat to Brazil.

Wheat producers in Brazil want the federal government to step in and start buying wheat at the guaranteed minimum price similar to what has been done for the last several growing seasons. Farmers do not like selling to the government because it is a slow and cumbersome process, but they have little alternative because there is virtually no domestic market for their product.

Conab is currently estimating that Brazil will produce 5.1 million tons of wheat, which is 13% less than last year. The domestic consumption of wheat in Brazil is estimated at 10.5 million tons.

After several years of poor yields and low prices, the future of wheat production in Brazil does not look very bright. Growing wheat in Brazil has always been a challenge and even more so in recent years as a strong Brazilian currency makes importing wheat more profitable than purchasing domestically produced wheat. Brazilian wheat production is expected to decline again in 2012 as farmers look for other crops to grow during the off season. Brazilian farmers will continue to grow wheat in areas where wheat is the only option for winter grain production.