Rice and wheat correlation is ignited as staple food demand pressures domestic markets

The strong exports of rice in the H1 had pushed the cereal prices to skyrocket in supermarket shelves. As most families are not likely to follow-up groceries with the soaring price, domestic demand is likely to opt for substitute products, by increasing the consumption of pasta. Rice fundamentals point out to two main variables on the shifting behavior. First the strong dollar currency and an overdemand on staple food coupled with the consumption changing habits have driven producers to massively export rice. At the same time while stocks were running lower and lower, processors were not pulling paddy rice from foreign countries to supplement the burning stocks, due to the same currency factor that put up the export mood and also due to logistic complications. Therefore with less rice availability prices needed to level up.

The next rice crop shall be harvested between February and March and now the market will turn its eyes to wheat crops all over the world. Brazil is one of the largest importer of the cereal and its main crop in the south cannot supply the whole country alone, that being said one more hurdle needs to be counted, the main supplying partner Argentina is still evaluating its crop failures after facing frosts and droughts in the past weeks. (it also affected Brazilian crops). If the country fails to meet its wheat processing demand with Argentine feedstock without securing any other potential sources, different from the two shipments from US in the past months, wheat by-product prices may potentially increase before the rice comes into place again.

The Esalq / Senar-RS paddy rice indicator closed at 104.58 reais per 50 kg bag last Friday, up 11.23% in the monthly variation and a 130% increase from the value recorded in the same period 2019, of 45.55 reais.

The scenario led the Executive Management Committee of the Foreign Trade Chamber (Camex) to zero the Import Tax rate for paddy and processed rice until the end of this year in an attempt to settle prices down.