By Luís Vieira
Low commodity prices are an issue that farmers will always have to face from time to time. On the other hand, there are alternatives that some farmers may consider for the purpose of rotation and to diversify risk.
The current season is definitely not the best for a lot of farmers in the Midwest, especially if you grow either wheat or corn. For Kansas analyst Mike Zuzolo, director at Global Commodity Analytics & Consulting, there has never been so much interest in replacing crops.
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Hog and poultry producers in the Brazilian state of Santa Catarina will be able to save up to 70 percent on corn purchases. The reason is that state will no longer bring the input from the state of Mato Grosso, but would import from Paraguay (310 miles or 500 km away) through the border of Santa Catarina with Argentina, which is closer and the logistics is cheaper. Santa Catarina demands 6.5 million metric tons annually, while it just produces nearly 3.5 million metric tons of corn.
Brazilian consultancy Trigo & Farinhas has issued a new projection for the total wheat production in the Mercosur market, which considers Argentina, Brazil, Paraguay, and Uruguay. The consultancy expects that Argentina would produce 17.5 million metric tons, which over six percent higher than in the previous crop, but the crops would be smaller than last year in all other countries: Paraguay (694,000 tons), Brazil (4.9 million tons) and Uruguay (600,000 tons).
“Argentina clearly will direct more wheat to Brazil even maintaining a lot of exports to countries outside of the Mercosur,” said Luiz Carlos Pacheco, director of Trigo & Farinhas.
A report from consultancy Agridatos revealed yesterday (07.25) that the Paraguayan wheat crop could shrink nearly 30 percent of a previously expected output of 694,000 tons. If that is confirmed, the South American could not export the volume of 350,000 tons that it wishes to ship to Brazil. Sellers, that is broekrs and cooperatives, expected to charge US$ 240 to US$ 250 per ton for the cereal, according to Agridatos.
Data shared by Conecta brokerage, which is based in Asunción, Paraguay, says that the country would produce up to 3.4 million metric tons of corn in this season. Early this week, the harvest of the cereal had reached nearly 25 percent of the surface planted, while approximately 30 percent of the expected production volume is sold. The brokerage estimates final stocks of Paraguayan corn at 1.4 million metric tons by December of this year.
The government of Paraguay has already sent a bill to the Paraguayan Congress that would impose taxes at a rate of 15 percent for all grains exported from the country. President Horacio Cartes believes he has enough votes to approve the measure in an agreement with the leftist opposition. Paraguay, today, is the fourth largest exporter of soybeans in the world with 6.3 million metric tons shipped. The argument of the Paraguayan government is that the agricultural sector has a revenue of over US$ 3 billion, but contributes less than other sectors of the economy. This year alone, the soybean output in Paraguay overcame 10 million metric tons.
In December of 2015, Argentina eliminated export taxes on wheat and corn. The result of the elimination was the doubling of wheat production and generating a growth of two percentage points of corn production. A program of reduction of export taxes on soybeans until its elimination in 2019 was also set.
Paraguay could beat its historical record of soybean production this year, according to local sources. The USDA and local projects put the Paraguayan output at 10.1 million metric tons and consolidating its position as the fourth largest exporter of the oilseed in the world. The local Ministry of Agriculture says that the number of 11 million metric tons can be beat throughout the year with a harvested volume of 10.2 million metric tons already and a second crop.
In a story for the Brazilian online newspaper Gazeta do Povo, some describe the crop as “perfect”. Paraguayan soybean yields are higher than those of Brazil.
After a fall of Paraguayan wheat exports to Brazil in December, but Brazilian consultancy Trigo & Farinhas forecasts a recovery of these exports for three reasons. The first is the start of the Brazilian harvest with “aggressiveness” from the state of Rio Grande do Sul. Secondly, the strike of enforcement agents of the Brazilian revenue service is likely to end this months. Thirdly, the dollar is in a level that is seven percent lower than in December (rated at R$ 3.25), which is more acceptable for importers.
After the victory of Donald Trump in the United States, several emerging market currencies have devalued – not only in Mexico. In the case of two major grain producing countries, such as Brazil and Argentina, this was not different. In the case of Brazil, the Dollar jumped from R$ 3.16 early last week to R$ 3.44. In Argentina, the U.S. currency was worth AR$ 15.26 and closed today at AR$ 15.76.
For Don Roose of U.S. Commodities, West Des Moines, Iowa, the current trend is more purchases of corn and soybeans from South America. “China is now shifting buying to South America,” Roose wrote this morning.
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Most analysts agree that in an eventual protectionist wave of the next president of the United States, Donald Trump, China could react by putting import taxes on U.S. grain or just not buying so much U.S. corning, seeking another suppliers such as Brazil, Paraguay and Argentina. Dave Holloway, a trader from the state of Michigan, it could be a problem for the United States if Trump confirms this policy. As candidate, he mentioned a possibility of 35 percent tariff on Chinese products, which was later denied.
“If Trump puts in practice this fight, the prices would increase and three countries [China, Japan and Mexico] would go to Brazil. We are not the only store in town. The Chinese would be happy to help the Brazilian infrastructure,” affirmed Holloway.
For Darin Fessler, a broker from Lincoln, Nebraska, says that “only time will tell about the ability of Trump to negotiate with China or Japan. I think there could be some good changes made to the manufacturing sector and currency side of things,” Fessler told AgroSouth News.
Corroborating with these opinions, Brazilian market analyst Antonio Sartori from BrasilAgro says that is more likely that Trump goes with complaints to the World Trade Organization against China, but that could suffer retaliation too. “China has spent US$ 100 billion with subsidies for corn, wheat and rice growers and this is out of the rules, “concludes Sartori.