February 22, 2013

Wheat to Compete for Acreage with Safrinha Corn in South Brazil

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

After several years of declining acreage, wheat may be poised to make a comeback in southern Brazil. As farmers harvest their soybeans in Brazil, they must now decide on what crop to plant next, either a second crop of corn or a second crop of winter wheat. In Mato Grosso, the overwhelming majority of farmers will plant a second crop of corn, but in northern Parana, they can choose either corn or winter wheat.

For the last several years, farmers in northern Parana have chosen to reduce their wheat acreage and plant more safrinha corn instead, but recent price movement has made wheat a more competitive crop.

Wheat is the only major grain for which Brazil is not self-sufficient. In normal years, Brazil is forced to import approximately half of the wheat needed for domestic consumption and most of that wheat is generally imported from Argentina. Due to a poor 2011/12 crop in southern Brazil (91% all the wheat in Brazil is produced in the southern states of Parana and Rio Grande do Sul), the country now needs to import 2 million additional tons to meet demand. The 2011/12 wheat crop was also disappointing in Argentina, so in order to find supplies, Brazil will be forced to source wheat from outside the Mercosul countries.

In order to do that, the federal government has suspended the 10% import duty on one million tons of non-Mercosul wheat imported between April 1 and July 31. The millers had originally asked for the suspension on 2.5 million tons of wheat, but the government wanted to help support the prices paid to wheat farmers. Even with this suspension of import duties, the domestic wheat prices in Brazil have reached levels high enough to attract farmer interest.

On Wednesday, February 20, Brazilian and Russian authorities agreed on phytosanitary guidelines that would allow for Russian wheat to be imported into Brazil for the first time. Ninety percent of the Brazilian exports to Russia are agricultural products and 60% of Russian exports to Brazil are fertilizers.

According to the Center for Advanced and Applied Economic Studies at the University of Sao Paulo (Cepea), in northern Parana the cost of producing a sack of wheat (60 kilograms) with a yield of 41.3 sacks per hectare (approximately 38 bu/ac) is R$ 25.89 per sack. The three month average price for wheat in the state is currently R$ 35.86 per sack, meaning the potential profit per sack could be as high as 38.5% (R$ 9.97 per sack).

At the same time, the cost of producing a sack of safrinha corn in northern Parana is estimated to be R$ 22.71 (assuming a yield of 69 bu/ac) with an average price of R$ 26.18, making the potential profit per sack of 15% (R$ 3.47 per sack). Additionally, the domestic price for wheat has been increasing and the domestic price for corn has been stable or declining slightly. Considering all the cost involved with crop production in northern Parana, farmers in the region could expect a 23% return on their wheat crop and only a 5% return on their corn crop.

The weather between now and end of the soybean harvest will also help to determine if wheat acreage will increase or not. If it looks like the rainy season will end earlier than normal and that cool fall-like temperatures will move into the state starting in May, then farmers in northern Parana may decide to plant a little less corn and a little more wheat. If the forecast is for the rainy season to end later than normal and there is no forecast of cool temperatures, then the farmers may risk planting corn later than normal.