Prices estimated for December show that Brazilian wheat will be among the most expensive in the world

08/18/2022

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Even with the prospect of a record wheat harvest and supply problems in the Northern Hemisphere, Brazil is unlikely to gain ground in the international market. This is because the prices estimated for December – when the current crop will have been harvested – show that Brazilian wheat will be among the most expensive in the world. This scenario seems bad for exporters, but does not bring tranquility to the domestic market either.

A study by consultancy T&F shows that the estimated price for Rio Grande do Sul wheat in December is R$102 a bag, while the FOB price (arriving at the Port of Rio Grande) will reach $385 a tonne, taking into account transportation costs and the foreign exchange rate at R$5.08 to the dollar. Luiz Carlos Pacheco, an analyst and partner at T&F, said that, at this price, the Brazilian wheat would reach Algeria, which is a major buyer, at $465 a tonne, above the prices of wheat produced by Argentina ($450), Canada ($416), United States (durum, $408), France ($383), and Russia ($315).

“This means that, in order to export, the price paid to the farmer should be R$88 a bag, something unimaginable given the high production costs,” he said. Therefore, the large Brazilian harvest, estimated by the National Supply Company (Conab) at more than 9.2 million tonnes, should be almost fully distributed in the domestic market.

Despite the larger harvest, Mr. Pacheco does not see a sharp drop in the prices of wheat and its products in Brazil. “It’s off-season now, so it would be natural for prices to rise and then fall again as of October. But farmers are flush with cash and I don’t see any of them interested in getting rid of their production at the current price,” he said.

At the same time, the mills accelerated their work until April and May in view of the strong demand and the war in Ukraine and managed to supply wholesalers and retailers. “It seems that everyone is overstocked, which would clearly indicate falling prices. But this is not happening because costs have gone up so much and margins have become so tight that no one wants to negotiate at lower prices,” he said.

Daniel Kummel, the head of Paraná’s wheat industry union (Sinditrigo-PR), said that the Brazilian grain market has always been detached from the Chicago exchange, which is the international benchmark. But after the Covid-19 pandemic and the war in Ukraine, there is a 90% correlation. “We started to export and that took us to the international market,” he said.

According to him, whose trade union represents 67 mills in the state, companies are really stocked up and working far from total capacity to wait for information about the harvest. “A cold front, with frost, as is forecast for next week, can compromise the Paraná harvest and hold up prices,” he said. “The mills are waiting to close new contracts with doubts about demand, costs, and prices.”

The only hope for any drop in wheat prices in the domestic market is the arrival of the summer harvest and the impossibility of producers to store soybeans and corn where the grain is. “Supply or demand will not bring down prices. Farmers will,” the analyst said.

Considering the prices that reach consumers, wheat rose 27.47% in the year to July, while baked goods including breads, cakes, and cookies saw an increase of 15.54%.

Wheat crop in Paraná: production costs help keep price high — Foto: Dirceu Portugal/Fotoarena/Agência O Globo

*By Fernanda Pressinott — São Paulo

Source: Valor International

https://valorinternational.globo.com/