“Whoever plants wheat this year can do well”, points out T&F

The time is approaching when farmers begin to make decisions about the area used for planting wheat for the next 2017/18 harvest. The subject is equally relevant for the input sector and for cereal producers and cooperatives, because it will determine the increase or reduction in sales volumes of these products in winter. 

In the assessment of Consultoria Trigo & Farinhas, there are reasons to believe that the price of wheat could rise in the medium and long term. “Whoever plants wheat this year could do well”, says T&F Senior Analyst, Luiz Carlos Pacheco, who points out several reasons to support the projection:

 
  1. There is still no concrete survey on the intention of Brazilian wheat farmers to increase or reduce the area, but in informal conversations these intentions seem to tend more towards reducing than increasing the area. As many farmers make their future decisions based on the previous year's results (rather than looking ahead), it is very likely that this will actually occur. As a result, it is likely that there will be a shortage of wheat to supply mills in the south of the country, leading to disputes over raw materials and, consequently, an increase in prices; 
  2. Analyzing the current situation of supply & demand for wheat in Rio Grande do Sul, we would bet that the greatest possibility is for an upward trend in domestic prices, especially from April and May onwards, when the soybean harvest ends. If the dollar remains below R$3.20/US$ the price of national wheat will rise, without panic; but, if for some reason, it migrates to something like R$/US$3.40, the imported one will become expensive and there will be a rush for national wheat (including from mills in the Southeast, Central-West and Northeast); 
  3. Wheat from Rio Grande do Sul is really very, very low (its relationship with the price in Paraná is double the normal), but the disadvantage is that the mill is not looking at the price of wheat, but the price of flour, which remains very low, due to lack of demand from the end consumer; 
  4. Argentine wheat prices, which remained around US$ 165.00/FOB for almost 6 months and, combined with the fall of the dollar, maintained their completeness against Brazilian wheat (proof that there is still Argentine wheat being unloaded in the ports of Rio Grande and Paranaguá, even after harvesting a super harvest), have already risen to US$ 182/t as of February; 
  5. International wheat tends to rise in the wake of Chicago, given the reduction of 1.0 million acres in planted area in the United States. Also in Europe, the consultancy Stratégie Grains cut, last Thursday, the 19th, its wheat production estimate for the 2017/18 harvest, which begins in July this year and runs until June next, projecting a harvest of 143.8 million tons, 1.2 million less than the previous projection. As a result, any problem that occurs with wheat that is currently in dormancy (some of which entered this phase without appropriate development) could significantly increase prices around the world; 
  6. Given these and other factors (such as excess short positions of the Funds in the futures markets, for example), Chicago has already risen the equivalent of R$ 50.00/ton in the last four months and continues with an upward trend, as shown in the graphs; 
  7. The Brazilian economy tends to grow positively by a minimum of 0.5% in 2017 (depending on some measures being studied, it could grow more), resuming some jobs and, mainly, the demand for products by the country's population. As one of the main problems with wheat is the price of flour, which, in turn, is linked to the sale of by-products, pasta and biscuits, if the economy recovers, there could be an increase in flour prices, improving the cost-benefit of mills. and the remuneration of farmers; 
  8. The low dollar is keeping the prices of imported inputs at lower levels: there was a reduction in the cost of wheat 8 months ago, when the dollar fell to close to R$ 3.15/US$ (going from R$ 40.09/sc to R$ 39 .89/bag) and, since then, Deral do PR has no longer changed variable costs as it used to do every 3 or 6 months. If the dollar continues at the level it is at (close to R$ 3.20) and inflation falls, costs will tend to remain unchanged. And if, on the other hand, prices really rise, as everything indicates, profit will be closer. (We know that this “if” gets in the way, but everything can be achieved and guaranteed if you operate futures markets). 

“Most of the factors that influence prices, both in the national and international markets, point to a slight upward trend in prices for 2017. On the other hand, input prices tend to remain unchanged or even fall. With this, Brazilian wheat farmers who plant wheat in the 2017/18 harvest have a great chance of obtaining good profits”, concludes Pacheco.

 

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Author: Leonardo Gottems
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