High dollar rates and low domestic supply may underpin quotes in 2020

Cepea, January 15, 2020 – Historically, Brazil imports more than half the volume consumed domestically (over the last six years, the average was 55.6%). The supply of high-quality product in the Brazilian market and prices influence the purchases, among other aspects.


In this case, the exchange rate has a big impact on quotes. Data from B3 and the Focus Survey, released by Brazil’s Central Bank, indicate that dollar quotes may operate above 4.00 BRL in the next three years, a new level. However, while high dollar rates push up imports costs, they favor the revenue obtained with exports. The supply of neighboring countries, mainly Argentina, also ends up affecting prices and the need to purchase from countries that are more distant.


The fact that high supply limits the imported volume is not a rule, given that national purchasers focus on prices of imports and on the quality of the domestic wheat. Because of the low liquidity in Brazil, the country has shipped the equivalent to 13.6% of its production on the average of the last six years.


In the first half of 2020, the total availability of PH 78 wheat in the domestic market is low, which may increase the interest to import. However, the new government in Argentina increased export taxes and indicates new changes, which may limit forward contracts.


In Brazil, the possibility of higher quotes and of the delay to plant the second corn crop in the ideal period in Paraná, São Paulo and Mato Grosso do Sul states may attract producers to plant wheat in 2020. In Rio Grande do Sul, the planting may also increase and, if that happens, the domestic supply is likely to be higher in the last four months of the year, which tends to impact quotes during the second semester of the year.


INTERNATIONAL – In global terms, the USDA forecasts that the 2019/20 wheat production hits 765.4 million tons, 4.7% more compared to the volume in the previous season. Higher production in China and Russia may balance decreases in Australia, Argentina and Canada. The world consumption is estimated at 753.8 million tons, an increase of 2.3% compared to 2018/19. Global wheat stocks may increase 4.2%, pushing up the ending stocks/consumption ratio to 38.4%, against 37.7% in the season before, given that the consumption has increased less significantly compared to production.


BYPRODUCTS – Most part of wheat mills indicate to have inventories for the first quarter of 2020. Players surveyed by Cepea say that prices for wheat flour and bran may increase at the beginning of the year, given that values of the grain rose.





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