In one week, prices rose by $100 a tonne, on average, in the physical market
08/03/2022
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Wheat production in Russia — Foto: Andrey Rudakov/Bloomberg
With the beginning of the war between Russia and Ukraine, in one week the prices of wheat rose by $100 a tonne, on average, in the Brazilian physical market. This rise is expected to be felt by consumers as early as next month in the prices of products on supermarket shelves, but it is still difficult to know the size of adjustments and how long they may last.
“It all depends on the extent of the war. If it ends soon, there will be a downward adjustment, although prices will certainly not return to the pre-conflict level. If the war goes on, there is no way to know the ceiling, because the production of Russia and Ukraine make a lot of difference in the wheat market,” Luiz Pacheco, an analyst at T&F Consultoria, told Valor. The two countries account for about a third of the global wheat trade.
The fact is that, today, Russian and Ukrainian exports through the Black Sea and the Azov Sea are completely paralyzed. According to Bloomberg, 140 bulk carriers are stranded off the coast of Ukraine. There are also 54 freighters and a container ship that entered Odessa shortly before the port closed, and another five merchant ships have been blown up in the region since the attack began.
Ships cannot leave Ukrainian waters because there are no crews, according to the vessel’s owners and managers. Furthermore, reports Bloomberg, citing the Spanish Navy, navigation in north-western parts of the Black Sea is restricted due to the threat of undersea mines.
In Brazil, the state of Rio Grande do Sul, which had ended its participation in Brazilian wheat exports this season, sold 50,000 tonnes this week. As a result, internal availability decreased. “The mills in Rio Grande do Sul are tense, because prices were already high and now nobody knows where they are going,” Mr. Pacheco said. According to him, the state exported 2.6 million tonnes of wheat out of an estimated production of 3.3 million.
In the state of Paraná, the situation is more relaxed, with foreign sales of 60,000 tonnes and a production of 3.2 million tonnes.
With regard to Argentina, which supplies more than 80% of the wheat imported by Brazil, availability was good, with a harvest of 22.5 million tonnes, compared to 20 million in 2019/20. However, with the onset of the conflict, producers have been holding back sales in anticipation of even higher prices.
“The tendency would be for the U.S. to supply the world market, but the U.S. winter wheat crop will be much smaller than needed,” Mr. Pacheco said. Production as of April, plus the spring harvest, is expected to reach 44.8 million tonnes in 2021/22, up from 49.7 million in the last cycle and 53 million in 2019/20, according to the U.S. Department of Agriculture (USDA). As in southern Brazil, American crops were hampered by excessive rainfall in 2021, followed by an intense drought.
There is still stock in the country, but as the overall picture is not of abundance, there are no signs of retraction in wheat prices. The International Grains Council (IGC) estimates global wheat production at 781 million tonnes. This number exceeds by 7 million the calculation for the last season, but is lower than the initial projection of the IGC itself, in July, of 795 million.
As consumption perception is at 781 million tonnes, above the previous harvest (771 million), inventories are projected at 274 million tonnes, compared to 278 million in 2019/20.
Without Russia and Ukraine, the picture tightens and the relationship between stock and use is negative. The Russian wheat production estimate for 2021/22 is 75.5 million tonnes, with exports of 35 million. The Ukrainian wheat production is estimated at 33 million tonnes, with shipments of 24 million.
Source: Valor International