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October 3, 2014

Brazilian Wheat Producers are Pessimistic about Price and Quality

The 2014 wheat crop in southern Brazil is in the midst of being harvested and farmers are already thinking about their 2015 wheat crop. Low prices and wet weather have farmers worried about the quality and yield of this year’s crop and the potential for even higher costs and lower prices going forward. This pessimism has also extended to their planting intensions for the 2015 wheat crop as well.

The wet weather over the last several weeks has led to increased worries about fungal diseases such as gibberella and rice blast. Farmers are worried that they may need to apply additional fungicides just to maintain the existing quality of the wheat. If the quality comes in subpar, then the price may be even lower when they sell.

They encountered a similar problem last year when wet weather at harvest resulted in lower quality wheat. In fact, farmers in Rio Grande do Sul still have 350,000 tons of last year’s wheat to sell. Selling opportunities in 2014 have been limited due to the government temporarily eliminating the 10% tariff for wheat imported from outside Mercosul countries, which allowed higher quality wheat from the United States to flood into Brazil.

Producers complained about the policy which encouraged imports, but the government justified the removal of the tariff stating that the wheat was imported into northeastern Brazil. They indicated that it was cheaper to import wheat into northeastern Brazil than it was to transport wheat from southern Brazil to northeastern Brazil.

The low prices have prompted the federal government to schedule two Pepro Program auctions in order to guarantee farmers in the region that they receive the minimum price for their wheat guaranteed by the government. The first auction will be held on October 7th for farmers and cooperatives in the states of Parana, Mato Grosso do Sul, and Sao Paulo. A second auction will be held on October 28th for participants in Rio Grande do Sul. The government also has allocated R$ 200 million for the purchase of wheat for public stocks.

Even with these government programs, the price of wheat in southern Brazil remains at or below the cost of production and lower than the minimum price guaranteed by the government.

After their 2014/15 soybean crop is harvested early next year, farmers in southern Brazil will have to decide between corn or wheat for their second crop. Even though corn prices are low as well, at the present time, it looks like farmers will trim their 2015 wheat acreage.