Brazil's flour millers reel from impact of high wheat prices

SAO PAULO (Reuters) - Brazilian mills have not been able to take advantage of a recent fall in global wheat prices, with many poised to raise domestic flour prices in coming weeks as Latin America’s largest economy finds itself in between harvests, industry sources said.

FILE PHOTO: A tractor works on a wheat plantation on land that used to be virgin Amazon rainforest near the city of Santarem, Brazil, April 20, 2013. REUTERS/Nacho Doce

That means consumers in Brazil, which is a net wheat importer, could continue to grapple with food inflation.

At the end of last week, Chicago wheat prices had fallen to levels not seen since the beginning of the war in Ukraine, driven by an increase in supplies from farmers in the Northern Hemisphere.

“Not yet, the price is not below the pre-war period,” said Fabio Cefaly, director of new business and investor relations at M. Dias Branco, the leading biscuit and pasta company in Brazil. “We saw a reduction (in the external price), but it is still very volatile.”

In June, average domestic wheat prices hit a record of 2,147 reais ($401.01) per tonne in Brazil’s southernmost state of Rio Grande do Sul, the highest since 2004.

Moinho Globo President Paloma Venturelli said the flour milling company has faced a cost increase of more than 30% related to wheat this year.

“We still have the challenge of passing on from 10% to 15% of these production costs,” she said. “This fluctuation of wheat in the international market is not reflected here,” she said.

Although the outlook is good for the 2022 wheat crop in Argentina, which has been Brazil’s main wheat supplier for years, there’s little to suggest domestic prices will fall.

On top of that, the absence of Ukraine in global wheat markets has spurred a spate of Brazilian wheat exports in the first months of the year.

“We have very short national stocks and demand is heated,” Venturelli said. “And as export contracts are being signed, prices will remain high.”

($1 = 5.3540 reais)

Reporting by Nayara Figueiredo; Writing by Ana Mano; Editing by Paul Simao