Brazil is known as being one of the world’s biggest agricultural powerhouses. 
But the nation is struggling to find wheat supplies and is facing the prospect of more expensive bread, pasta and cookies.
While Brazil is a major producer of everything from corn to beef to sugar, wheat is one of the rare crops where the nation is a net-buyer, relying on shipments for about half of domestic consumption. 
This year, the country is even more dependent on imports amid low inventories and after a poor crop in 2017. Tighter supplies mean wholesale prices have surged more than 50% this year in some regions.
The problem is that wheat availability has grown scarce in Argentina, which supplies Brazil with about 80% of its imports. 
While Argentine farmers had a good crop, they locked in sales early. From the roughly 18mn metric tonnes harvested in the past season, producers have already sold 13.5mn tonnes. 
That leaves about 4.5mn tonnes still available, trailing the 6mn tonnes that Brazilian millers group Sindustrigo estimates the country will need through the rest of the year.
As Brazilian buyers compete for supplies, they’re driving up import costs.
Argentine exporters are now fetching about $263.75 per tonne for wheat shipments, a 52% surge from a year earlier, according to data from Commodity3. 
The situation becomes more dramatic when taking into account that the Brazilian real is slumping, which makes the dollar-denominated imports even more expensive.
“We have no choice but to pass on the cost increase to Brazilian consumers,” said Christian Saigh, the head of Sindustrigo.
M Dias Branco, a leading Brazilian pasta and cookie maker, may lift prices again this quarter after increasing them 4% in the first quarter, according to Fabio Cefaly, the company’s director of investor relations.
Food producers “have been passing on cost increases in the past two or three months, but more adjustments will be needed,” said Claudio Zanao, president at Abimapi, an industry group representing Brazilian cookie, pasta, bread and cake makers.
Still, given the country’s weakening economic recovery, it may be hard to pass on all the cost gains, Saigh of Sindustrigo said. 
Increases to consumer prices for pasta, cookies and bread have trailed overall inflation this year, according to Andre Braz, an economist at Getulio Vargas Foundation, which calculates inflation measures.
One solution for millers could be to turn to the US for more imports. While shipments from Argentina have the benefit of tariff exemptions and lower transportation costs, since prices have jumped so much, American supplies may now be seen as competitive.
“There’s a great chance for Brazil to import good amounts of US wheat in the coming months,” said Luiz Carlos Pacheco, a senior analyst at Trigo & Farinhas, a Curitiba-based consultancy that specialises in the wheat market.
Some millers and wheat buyers are also lobbying for relief from tariffs that could make it cheaper to import from suppliers beyond Argentina, such as the US, Canada and Russia.
“We’ve been talking to the Agriculture Ministry about a tax exemption possibility as mills are very concerned about the wheat shortage,” said Rubens Barbosa, the president of industry group Abitrigo.
There’s likely to be some relief from the high prices before the end of 2018, since farmers will start gathering this year’s crop in September. 
The crop is expected to rise 14% as higher prices have encouraged producers to increase the planted area, Brazil’s national supply company said on Tuesday. Argentina’s next harvest will also be around the same time, and some analysts are expecting production there to reach a record.




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