Why Canadian wheat has not been to the Brazilian market?

grain elevator south eastern manitoba red river

 

Why Canadian wheat has not been to the Brazilian market?

By Gabriel Ferreira

The Argentine planting was far short of its potential in the 2013 crop losses from drought in the American wheat crop in 2014, local prices increased to U.S. $ 360/ton FOB in early May, but the Canadian Wheat, why has not come into the Brazilian market ?

The Argentine planting was far short of its potential in the 2013 crop losses from drought in the American wheat crop in 2014, local prices increased to U.S. $ 360/ton FOB in early May, but the Canadian Wheat, why has not come into the Brazilian market ? That’s what we try to understand in our analysis today, the eve of the CAMEX meeting that will decide whether the wheat will be removed TEC or not.

According to market players in importing wheat consulted today, currently the main issue not bring bring Canadian wheat, but the U.S. is wheat prices and freight difference. At the moment FOB St. Lawrence between $ 325-340/ton and FOB Gulf of Mexico right in the middle of this range. The difference in freight between the ports of the Gulf and southern Canada should reach U.S. $ 10/ton.

Soon both are equal in relation to prices of arrival at Brazilian ports, but the Canadian wheat has not come for reasons inherent in mills and Brazilian consumers. The market observations and reports from vendors mentioned the following causes:

1) Classification of Canadian wheat: Canadian wheat classes available are not suitable for use in flour produced here in Brazil. Especially in baking three of respondents stressed that Canadian wheat does this kind of flour alone and it brings some inconvenience cited below.

It is worth mentioning that as in the case of the Gaucho wheat, it is not calling it a “bad” or “good” wheat, not only meets the needs and habits of Brazilian consumers;

2) Workability of the wheat in mills: Brazilian buyers, especially in the South, complain about the difficulty of regulating machinery to grind Canadian wheat as well as increased wear of machinery;There are also reports on the difficulty in correctly dosing of blends with other wheats. At this point, the U.S. is much more acceptable, given the fact their use from North to South of the country in the current harvest, the absence of Argentine wheat;

3) Logistics: With a very large crop in 2013, there were problems flow from production to Canadian ports without associated to it, the port that has the best condition for export to Brazil spends at least three months of the year unable to load the freezing of its waters. This limited until at least March sending more Canadian wheat to Brazil;

4) Quality of the last harvest: With a record production, estimated at 37.5 million tonnes in 2013/14, productivity curtailed somewhat the protein quality of Canadian wheat. Somehow, excessive rainfall in the country also affected the qualitative parameters, and we tried to bring a wheat type 2 extremely cheap in early Brazilian harvest and that was not very well accepted by all their buyers, so much so that not again be sought by Brazilian mills.

Ok, we have these limitations, but new purchases can be made?

In our opinion and our respondents, obviously it all depends on the removal or not of TEC, which would bring greater attractiveness to Canadian product. Another point is the behavior of the U.S. wheat prices, with current losses that can work with an award in relation to other sources, depending on the threshold level to encourage new purchases until the arrival of the new Argentine crop.

But given the above, it is clear that Canadian wheat would add to the mixtures and not to replace American and Argentine wheat production of breadmaking flour.

SourceGabriel Ferreira “Por quê o trigo canadense não tem vindo ao mercado brasileiro? [translated from the portuguese version on 2014-05-21] http://www.afnews.com.br/trigo-brasil/por-que-o-trigo-canadense-nao-tem-vindo-ao-mercado-brasileiro-.html

Note: U.S HRW CNF Brazil will fetch $400/MT this wk. Arg wheat is in the $350/MT zone for Brazil but they complaint about the quality. With the %10 fob tariff imposed on non-Mercosur countries, it’s not cheap but some seeking to load brazilian beans bound for the U.S., the arb is open.  From Wheat Trader Sean Linstead, Canada’s exports to Brazil rose from 16,500mt to 342,300mt y-t-y, still the U.S. dominates with 3.48mmt y-t-d.

 

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2 thoughts on “Why Canadian wheat has not been to the Brazilian market?

  1. Canadian CWRS#3 is very desireable for certain mills in order to improve the flour strenght, give some additional stability and beter FN values. The point is that the bigger proportion for US hard taken has replaced argie and thus probably limited the convenience of having Canadian to get to blends. Specially when you make numbers and quality with the typical upriver. This year Argentinean Govmnt only allowed a quota of 1.5 million exports. The TEC will be probably removed in the near future but limited somehow in time (pre brazilian harvest) and in volume. Canadian is atractive by quality, but US wheat LY was perfectly fine to suit the needs of millers and flour consumers. Canadian blends with argie… not with US. As long as there is no Argentine available for Brazil, there wont be bigger proportions of Canadian against US. Also game spreading HRW 11.5 pro was cheap enough to prevent importing SRW, which, could have given some additional need for blend of Canadian.
    Regards,
    Mario Crusizio
    Grain and Oilseeds trader at CAGSA. Trading Manager at Compania Argentina de Granos

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  2. Mario, all your points are very excellent, I now saw that Brazil has decided to maintain the Tarifa Externa Comum (TEC) 10% tariff on non-mercosur wheat imports. In line with what you said about Argie/Can mix, U.S HRW fits for the needs of Brazil. Canadian Integrated Merchants remain interested by exports but are primarily feeding their milling units. It’s not a secret that in Canada the flour business is consolidated between few hands, they can maintain high gross margins if they keep a low profile. [Read: exports are not always the first and foremost priority]. They heavily invested in new grinding and rolling equipement, Wheat basis is cheap (CWRS2 in the prairies -120$ under the June contract, for CWRS#3… add another negative $30/Mt).

    Also, this year wheat traders and buyers were more concerned falling numbers tests at Canadian exports points because of sprout damage. The risk of failling FN tests is also substantial for traders, discounting grain, losing their reputations in the export markets… The Key in exports is to be reliable first, maintain this reliability, and grow relationships to promote buying habits.

    Domestic market is also strong since they removed the U.S. Origin rule to deliver HRS wheat by rail to mgex warehouses. Trade has gained record popularity in the Canadian Marketplace: U.S is now importing Durum and Canadian HRS at record levels wheat this year not seen since WWII and to my best knowledge, unlike exports, the HRSW contract provides no guidance on FN test. The U.S merchants can source cheaper components from Canada, sorts it, blend and export high value wheat. I expect this trend to continue.

    Thanks for stopping by Mario, Wishing a great season to Cagsa Compania Argentina de Granos S.A. in Río de la Plata.

    Simon Jacques

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