Wheat producers missed opportunities in the biggest Brazilian harvest in history

Wheat farmers wasted the best wheat harvest in Brazilian history because they made mistakes when it came to marketing, by not correctly calculating costs versus current prices. The observation was made by senior analyst at Consultoria Trigo & Farinhas, Luiz Carlos Pacheco, according to whom “the profitability of the 2016/17 harvest was not due to high prices, but to very high productivity”.

The harvest presented results between 70-90 bags per hectare, compared to an average of 45-55 bags/ha in previous years. Multiplied by the prices in force in October (R$ 33.00/bag in RS and R$ 35/bag in PR) the revenue per hectare was between R$ 2,310/3,150.00 per hectare, against a cost of around R$ 1,880/hectare, allowing , thus, profits between 22,87% and 67,55%, depending on productivity.

The delay in commercialization generated storage and financial costs and today these profits are no longer the same. The main mistakes made by wheat farmers detected by Consultoria Trigo & Farinhas were the following:

a) They did not realize the opportunity to set prices in the futures market between R$ 50.00-R$ 56.00/bag during the months of March to July 2015;

b) They did not realize the chance of setting prices in the futures market between R$ 40.00-47.00 between July/15 and July/16;

c) They allowed themselves to be deceived by the comparison of physical market prices with the Minimum Price offered (but not guaranteed) by the government and stopped selling at the beginning of the harvest, when, even at prices of the day, the great productivity still presented a profit between 23% and 67%;

 

d) Faced with a super-abundant harvest, the leaders, instead of trying to sell the excess to mills in the Northeast or for export (as the Argentines did, who also had a super harvest), went to ask for help from the government, which delayed, delayed and when made resources available and did so in a clearly unsatisfactory way (not using the resources properly, which ended up being left over – will these people never learn that government is not a solution?). The entire process of draining the surplus was an embarrassment this season, because it did not have any of the expected effects.

 

However, according to T&F there are other fundamentals behind this, which also need to be reviewed. The main one is the production cost, which, in our country, is very exaggerated. Some of them are the following:

1) Practically all items used in production, mainly inputs, are overcharged under various pretexts;

2) Lack of selectivity in production: everyone plants type one wheat and spends a lot on chemicals to achieve it, not realizing the different market needs and their lower costs, which would allow them, if not the same, even greater profitability;

3) The flow is truncated by excessively expensive freight, due to a fuel policy that has to pay for Petrobras' losses and thefts;

4) There is no adequate storage for wheat throughout the harvest, forcing producers, cooperatives and cereal growers to sell all production ahead of time, to free up space in warehouses (their own error, in part, and, in part, the banks that charge exorbitant interest);

 

5) The latest increases in ICMS on interstate sales of wheat in the two main producing states and the ICMS costs for the supply and operations of cabotage ships (nothing against charging taxes, but everything against exempting foreigners from this charge, taking away all the competitiveness of national products) took away all the competitiveness of national versus imported wheat.

“Wheat cultivation is much earlier than soybean cultivation in Brazil and even provided the infrastructure for it to develop, but it did not have the same development as oilseeds. And do you know what the main point of this difference is? Soy is exported and wheat is not. Wheat has more internal uses than soybeans, an even greater consumption, but it has no alternative for commercialization, via export, like soybeans. This is because their costs are excessively expensive (which means they can be reduced), the climate risks are too high (which just means we are planting more in the wrong region than in the right region) and no knowledge of the future market, which would allow us to guarantee and increase the sector’s profitability”, concludes Pacheco.

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