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October 6, 2016

Price of Wheat in Parana below Government Minimum

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

The wheat harvest in the state of Parana in southern Brazil is approximately 50% complete and farmers are reporting good yields and the quality of the crop is reported to be good as well. The state is expected to produce 3.1 million tons of wheat in 2016, which is about half of Brazil's total wheat production.

While the yields are good, the domestic wheat prices in the state are very disappointing. Current wheat prices in the state are approximately R$ 36.00 per sack or approximately $4.95 a bushel for bread-quality wheat. This is below the minimum price guaranteed by the government, which is R$ 38.65 per sack or approximately $ 5.32 per bushel.

In July of 2016, the wheat prices in the state were 25% higher than today due to a shortage of corn and livestock producers substituting wheat for high-priced corn in their feed rations. Generally, wheat is sold at 80% to 85% of the price of corn when wheat is used as feed. In July of this year, the corn prices in Parana were high enough so that farmers could sell their wheat at above the minimum price guaranteed by the government.

Once the safrinha corn harvest got underway in Brazil and corn supplies became more plentiful, corn prices stated to decline and they pulled down wheat prices along with it. The current domestic wheat price in Parana is now the same as it was in October of 2015 or about R$ 36.00 per sack.

The Brazilian government is aware of the low prices and the Ministry of Agriculture has indicated that they will start purchasing wheat under the Pepro Program probably within two weeks. It is thought that they could purchase up to 300,000 tons of Parana wheat at the minimum price of R$ 38.65 per sack for delivery to northeastern Brazil where there is a deficit of wheat.

Brazilian farmers generally do not like selling their grain to the government under the Pepro Program due to the fact that the government payments may be delayed. It is not uncommon for farmers to wait up to one year for their payments, while in the meantime, inflation is running at approximately 9%. Therefore, the longer the payment is delayed, the less they receive.

In the meantime, farmers in Parana have sold very little of their newly harvested wheat due to the fact that the domestic wheat price is below the minimum and they are expected to remain slow sellers.

Brazil only produces about half of the wheat needed to supply the domestic market. The remainder of the wheat is imported primarily from neighboring Argentina and Paraguay. Currently, new crop wheat from Paraguay is selling for R$ 39.00 per sack in Parana, which is just slightly above the minimum price.