November 8, 2011


Brazil set to launch state wheat buying amid price fears



Brazil is ready to launch seasonal intervention buying for wheat even in the midst of concerns over the scheme cost, by which cancellation of the scheme would open up the country to even higher wheat imports.


Brazilian agriculture official will this week hold three auctions, offering to buy the grain at a minimum price, with further sessions scheduled by the end of February.


The programme offers farmers, whose costs of production are typically below market price, a chance to make up their losses - and meets a Brazilian goal of supporting domestic production of a staple crop, which without subsidies would be uneconomical to plant.


However, the cost of the scheme has provoked longstanding concerns, made more acute by a need to curb government spending. One of the first acts of President Dilma Roussef's government on taking power this year was to unveil US$30 billion in budget cuts.


"There are people uncomfortable about the cost," influential farm analyst, and Brazilian farming expert, Michael Cordonnier said. "Dilma has to rein back on spending in some areas, especially with the need to pay for the World Cup. It might be next season we see the minimum price removed that remains to be seen. Brazil might decide it will never have self-sufficiency in wheat, and leave it at that."


For Brazil to ditch or lower subsidies would open the prospect of even larger imports to a country with buy-ins forecast by USDA attaches at seven million tonnes in 2011-12, making it already one of the top purchasers, with Egypt and Indonesia.


The country's total wheat consumption is about 11 million tonnes a year.


Brazilian wheat is grown in the south of the country, over some two million hectares, as a second crop after soy.


However, it is relatively low-yielding, at an average of 1.9 tonnes per hectare over the last decade, more than 20% less than in neighbouring Argentina, and down more than one-quarter on US rates, with this year's crop hampered by frosts and harvest rains.


Indeed, the result has entrenched a record of quality concerns which have encouraged millers to look abroad, a dynamic which has been encouraged by the long-term strengthening of the Brazilian real, making imports cheaper.


Indeed, growers in Parana, the largest wheat-growing state, had sold only 15% of their harvest as of late October, down from 25% a year before.


"Farmers are finding it difficult to sell even at a loss due to the lack of offers," Dr Cordonnier, at Soybean and Corn Advisor, said.


Buying wheat at above-market prices, and selling to millers at the going rate, spells significant losses for the government in wheat buying, especially as prices are based on levels set three years ago during the market spike.


"There was this belief that prices would never go back down again," Dr Cordonnier said.


The anomaly left Brazil, just before the current grains rally kicked off in June last year, paying BRL$530 (US$303.38) a tonne for bread wheat, at a time when US hard red winter was trading at US$315 a tonne.

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