International Wheat Industry Conference 2024, Brazil

Good afternoon. I have never seen such a large audience at 3:30 in the afternoon! It’s a big effort to be here, and I take it as a compliment. I'll do my best not to disappoint you.

I’m from Copenhagen Merchants, where I head the brokerage division. Our team works across many regions around the world, including an office in São Paulo focused on the Latin American markets. With over 20 years in this business, I, like every trader, identify with a specific crop. For me, it’s wheat. So, being here in Brazil, a major wheat-importing nation, feels like the right place to be.

Brazil is crucial not only for its wheat imports but also as a diversified agricultural hub. I’m here to discuss the other side of the picture: the Eastern Hemisphere. Brazil’s export capacity is growing, with promising opportunities to expand production, especially with new GMO varieties and improved yields. But simultaneously, imports are increasing across the whole region. Given this is a media conference, I'll focus on imports into Brazil and Latin America, rather than exports, although my company handles both.

I believe everyone here shares a common goal: to combat food inflation. High food prices hurt everyone—the country, the business, and the consumer. While temporary profits might arise from inflation, it generally causes more disruption than benefit. One way to combat food inflation is by diversifying our sourcing, giving us access to a variety of origins based on cost-effectiveness, availability, and quality. Different wheat origins bring unique characteristics, and today’s global volatility demands flexibility in sourcing. We see this trend globally—in Africa, Asia, and here in Latin America.

Now, let me show you the state of wheat imports across Latin America. This region has a huge purchasing power, importing about 20 million tons of wheat annually. Argentina contributes around 3.5 to 5 million tons each year, with the U.S., Canada, and now the Eastern Hemisphere, especially Russia, increasing their shares in the market.

Over the last 20 years, Latin America’s wheat consumption has grown by almost 10 million tons, with production largely keeping pace. But increased local production in Brazil doesn’t necessarily mean fewer imports, as wheat grown in South Brazil often heads to markets in Africa and Asia. This means more trade overall—both imports and exports continue to rise together.

Among Latin American countries, Brazil and Mexico are the top wheat importers, followed by Peru, Colombia, and Ecuador. In total, the region imported around 21 million tons of wheat this past season, a figure that’s steadily growing. This part of the world is becoming more and more relevant on the global stage.

To understand agricultural trends, we have to look beyond year-on-year comparisons and examine decade-by-decade shifts. Over the past ten years, U.S. wheat exports to Latin America have declined, with Russia filling the gap. This shift seems to be a lasting trend, as the U.S. is producing less wheat each year and relying more on imports when necessary. Consequently, Brazil and Latin America must look increasingly to Eastern Hemisphere sources, adapting to different quality standards and regulatory requirements. Some of this work is ongoing, but more remains to be done.

When examining Brazilian and Mexican wheat imports, in 2018-2019 Brazil imported nearly 6 million tons, while last season it was around 3 million tons due to a better crop. Although Brazilian mills in the north are adapting to alternative sources, the country's import dynamics are changing. Russia, which had no market share five years ago, now has a foothold. Meanwhile, recent BRICS meetings in Moscow emphasized ambitions to create a marketplace for BRICS agricultural commodities, possibly including a BRICS currency. The Russia-Brazil trade relationship seems to have strong support and momentum at this time.

For Mexico, much of its wheat supply comes from the U.S., supported by a robust rail trade over the border. However, with the upcoming presidential elections in the U.S., some trade agreements may be at risk. If these agreements are disrupted, Russia could step in as a wheat supplier.

Another developing source is the Baltic Sea, which includes regions in Germany, Poland, Latvia, and Estonia (where I’m from). The Russian Baltic region, including Kaliningrad, has a flow of about 3 million tons annually, though most of it currently goes to Mexico rather than Brazil. With proper regulatory protocols in place, Brazilian mills could potentially buy from these origins when the price is competitive.

The job ahead is to establish a platform and regulatory protocols to allow Brazilian mills to buy wheat from diverse sources whenever it makes economic sense.

So I think that is that is that effective for both Russian and, and, and the European Union flows and, and I that's why we see that I think we are going to I think we are going to be seeing, a lot more of it in the future. The wheat production and especially the, the wheat, exportable surplus.

You see, it's been growing and, and I think that is still potential to grow in the Baltics. We, we see that, that, that wheat is definitely looking for new alternatives as a destination market. And, I think that the, the both Mexico and especially Brazil and maybe Colombia, Venezuela are gonna be the destinations where whether it is going to be quite relevant for as an area instead of having to ship it to Asia.

And yeah, I mean, for the ones who are interested, the typical these are the standard, quality parameters that we are trading for, for the Baltic Sea origin. So yeah, I believe it's relatively similar to it's very high on gluten. It's very good stability on on baking and it's high on energy. So, on the Alva graph, you figure it, it always goes very high.

So usually the mills like it. The double and, Germany, Poland, we see the same that where Poland is increasing a lot now and exports. And there are already specific discussions going on about the phyto protocol in Poland. To be, to make it shoot Brazilian imports. So, so this is something where we also see a lot of potential for the, for the future.

The there is a specific thing in Poland. Poland is not really able to ship. Panamax is only a few Poland can ship these and supermax is only. So that means that, say 30 40,000 ton of vessels and that is the size of Brazil takes. So this makes Poland actually a very good match for Brazil. They have less alternatives to go.

And the Polish German quality, which is very similar to the to the Baltic, Baltic Sea, to the Baltic qualities. And that is a slide I already showed you. Now this is the same slide, but you see where, these are the destinations of the Baltic Sea countries where they are shipping, too. It used to be Iran on top.

Then it was Saudi Arabia. But now what you. I'm sorry. Press the wrong button. Yeah. So now what you see here, it's basically West Africa. There is a lot of West Africa where they go because and the and and the South America, Latin America could really fit well into, into this I believe if they, if we show the same slide again in five years, we are going to see Brazil in this list.

What about the freight? Are they competitive? Is Russia competitive or is a Baltic Sea competitive to United States to, Canada on the freight? So we made, small comparison here. And you see that the, the freight actually, here we have Mexico and here we have Brazil. So, you can see that, the freight from Russia is actually higher than from alternative countries.

And in the Mexican case, of course, obviously USA is by far the cheapest. But freight, as we all know, sea freight is only one element in the equation. The other element is a price of the week itself. So what happens if we combine the freight with a V price and we look at the CFR figures. This happens. So you see suddenly that that to Mexico, Russia is pretty much on par with the U.S actually these numbers, my prices are from last week.

When I made the presentation yesterday, Russia U.S were exactly on the on the same par. But if you look at Brazil then this is a US wheat price. Yesterday we have then we have Baltic Sea which I mentioned. Then we have Russia here. So and then we have Romania, Romania. On the paper looks cheap, but it is not able to come to Brazil today.

It's a very soft wheat. It has to go into specific destinations. I just wanted to add it as a comparison, but it's definitely something to talk about. But you see that price wise it is competitive. Well, I don't have Argentina here and I think Argentina new crop is definitely going to take the market share. So Argentinian Dynamics is that you know, the during their harvest they grab the market not only in Brazil but almost globally.

And then they ship and sell everywhere. So we're going to see a big effect on energy. But however, if we're looking at the in Brazil alternatives to RG then this is a picture actually.

And then I want to come back and zoom in on the Russian flows. So, Russia, what you hear in the news is or what you hear in the industry. You hear that? Okay. Sometimes, that it can be an issue on the phyto, and then the government is taking more control. So I just want to explain and elaborate a little bit on what are the trends, what are happening in Russia and how it affects, destinations and Brazilian, consumers.

All the middle of the wheat. So, in Russia, use what you see today happening is that the government is taking a stronger and stronger control of the wheat exports, and the government is really saying two things. They are they are saying that the wheat they are, they are they are looking at wheat as any other natural resource of the country, like oil or gas.

And they are saying, okay, because because it's a natural resource for the country, then the country has a say in how and where it should be traded, and that is certain logics in it. So they are like saying, okay, you can export as a private company, but we want to you first of all not to sell the wheat to cheap.

We want you to sell it at a certain level. But for what it is worth, because they want to avoid a situation where Russians are competing with Russians and then, the wheat goes, generates a very big discount. And that is something which is, which everybody is trying to get used to today. The other thing, what, what they are saying is that they, they see it as a negative thing, that the global trading houses are buying the wheat on FOB Russia and then delivering it to various destinations.

They see it as somebody who who is not Russian is, coming and eating away there some of the price. What they what they show they get themselves. It is a little bit simplistic view because we know how the commodity markets work, how it's it's a basically a big pot of soup. But but anyway, that is a view.

And that means that Russian companies are today discouraged to sell FOB to international trading companies. And they are very much encouraged to go directly to destinations and go directly to mills and, and as often as usual in Russia, a lot of these things are not written. They are just kind of, known and implied. So, what it means is that we today we see that it's very hard to buy an FOB cargo in Russia for an international trader.

The companies, they don't want to participate in it. They, they instead they are giving us as brokers a task saying, please go and discover us. Destination consumer buyers in Asia, in Africa, in South America and South America is a new and hot place. Looking at it from the Russian point of view, where they all see that the way they want to come.

That also means from looking at it, from Brazil, it means that we believe that in the next near future, from now one, actually, we are going to see less international companies offering Russian wheat to Brazil, and we are going to see more of the Russian companies that are two Russian companies here in Rome today we have Austin and we have foods.

So Austin and Rich fields are, Russian originators, Russian companies, and they are the ones who have already a clear ambition to come and sell in those markets. However, mark my words, same event next year that is going to be more than two. That's going to be eight. So, I think this is how the trend is going.

The, and it is an irrevocable trend because what we always see is if originators learn that in Asian markets, if they learn the quality, their paperwork, their credit lines, their performance, if that all gets developed, their business does not go back to FOB, even if the restrictions disappear, the business stays there because they they have learned it.

And and again, this is what I believe that. So I think that that what is going to happen in the next 12 months and that wheat imports, okay, we're going to have the ag show for the next couple of months. So that's fine. But the the rest of the market will wait. But once it prices back in, then we we're going to see a new names, new sellers coming, coming to those markets here and offering the wheat that takes introduction, getting to know each other and learning how to dance this, dance together.

So. So I think that the, number one, I think that that is a very, strong potential in, in this business. I think that, the as I said, U.S. exports are slowly declining on the wheat. If you look at the long term trends, we see that the imports here are growing, and we see that the ability of the mills there to be more universal use, more of various origins, is increasing everywhere.

And on today's volatility, it's necessary. So, we think that that gives a very big potential. And then we have the whole BRICs, countries, China, Brazil, India, and I think, that is, how this whole picture is going to evolve.