May 18, 2015

Increase in Minimum Wheat Price not enough say Brazilian Farmers

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

The Brazilian government announced last week an increase in the guaranteed minimum price for wheat, but Brazilian farmers are not satisfied with the 4.6% increase. They feel the increase is not nearly enough to cover their increased cost of producing wheat in the state of Parana, which is estimated at 14% for the 2015 wheat crop. As a result, the Agricultural Federation of Parana (Faep) has asked the Minister of Agriculture to reconsider the increase which will take effect on July 1st.

The Minister announced last week that the minimum price for wheat would be increased 4.6% from R$ 33.45 per sack to R$ 34.98 per sack based on technical information from Conab. But Faep used data released by Conab in January to illustrate that the increase in the minimum price for wheat would not be enough to even cover the variable cost of producing wheat in the state of Parana.

Faep calculated that the variable cost of producing wheat in the state is R$ 36.73 per sack in Cascavel (western Parana), R$ 37.26 in Londrina (northern Parana), and R$ 38.22 in Ubirata (central Parana). All of these prices of course are above the minimum established by the Minister (R$ 34.98 per sack).

Farm organizations in the state are requesting that the minimum price for wheat be increased 19% to R$ 39.92 per sack. Their requested minimum would cover the estimated 14% increase in the cost of production and offer a small profit margin for producers. They feel the minimum proposed by the government is actually a disincentive for farmers in the state to plant wheat.

Brazil is a major importer of wheat, but farmers in Brazil are reluctant to ramp up their wheat production due to low prices and generally low yields. The two principal wheat producing states in Brazil are Parana and Rio Grande do Sul and the two states combined produce more than 90% of Brazil's wheat. Wheat farmers in Rio Grande do Sul are still recovering from the disastrous 2014 wheat crop. Heavy rains at harvest time reduced their wheat yields by at least one million tons and the quality of the wheat was so poor that some of it was not even suitable for animal feed.