August 11, 2011

Brazil to Import 5 Million Tons of Wheat in 2011/12

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Poor growing conditions in southern Brazil is taking a toll on the wheat crop in the state of Parana. Parana is the largest wheat producing state in Brazil responsible for 52% of the Brazil's total wheat production. Farmers in the state reduced their wheat acreage by 13% in 2011 and now freezing temperatures and wet weather is reducing the production even more. Conab is estimating the state's wheat crop at only 2.5 million tons, which is down 400,000 tons from earlier estimates and the production may fall even further. But in spite of the lower production, domestic prices for wheat in the state of Parana remain below the minimum price set by the government and below the cost of production in the state.

The total Brazilian wheat crop is estimated at 5.4 million tons with domestic consumption estimated at 10.5 million tons, which means that Brazil will need to import slightly more than 5 million tons of wheat to meet domestic demand. The majority of Brazil's imported wheat comers from the neighboring countries of Argentina, Paraguay, and Uruguay, but occasionally Brazil is forced to import wheat from the United States and Canada. A higher tariff must be paid whenever wheat is imported from non-Mercosur countries.

Losses in Parana are partially being offset by improvements in the wheat crop in the state of Rio Grande do Sul. The state of Rio Grande do Sul is the second leading producer responsible for 37% of the country's wheat production. Farmers in the state increased their wheat acreage by 6% and the state's production is expected to be 2.0 million tons, which is 7% more than in 2010.

With the wheat harvest set to begin in approximately a month, the domestic price of wheat in Parana is in the range of R$ 25 to R$ 26 per sack, while the minimum price set by the government is R$ 28.62 per sack and the cost of production in the state is estimated at R$ 30.00 per sack.

The cost of producing wheat in Brazil is much higher than in other major wheat producing countries. Lower wheat yields are the main reason for the high cost of production in Brazil. The average statewide yield in Parana in 2010 was 2,950 kg/ha (43 bu/ac) and that is expected to fall to 2,580 kg/ha (37 bu/ac) in 2011. In comparison, wheat yields in France can be as much as 10,000 kg/ha (145 bu/ac).