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July 14, 2016

Conab more Optimistic concerning Brazil's Wheat Production

While the possibility of a La Nina resulting in dryer than normal conditions in southern Brazil during September-October-November is worrisome for soybean and corn producers, it is actually good news for wheat producers in southern Brazil. The last two wheat crops in southern Brazil have been severely impacted by too much rainfall during harvest, so the dryer forecast for this year is actually welcomed news.

In their July Crop Report released on July 7th, Conab increased their estimate of the 2016 Brazilian wheat production. They are now estimating the crop at 6.28 million tons or 6.8% more than the 5.88 million tons estimated in June and 13.5% more than last year's production of 5.53 million tons.

The wheat acreage stayed essentially unchanged from last month at 2.14 million hectares, but the nationwide wheat acreage is down 12.5% compared to 2015. Parana is the number one wheat producing state with 52.8% of the acreage followed by Rio Grande do Sul with 36.2% of the acreage. Combined, these two states account for 89% of all the wheat planted in Brazil.

The big change in the July Crop report concerned the estimated wheat yields. In June, Conab estimated the wheat yield at 2,735 kg/ha (39.6 bu/ac) and that was increased 7.2% in July to 2,933 kg/ha (42.5 bu/ac). The nationwide wheat yield in 2015 was 2,260 kg/ha (32.7 bu/ac), or 29.8% less than this year's projection.

The weather thus far in southern Brazil has been very beneficial for the wheat crop. The temperatures have been quite cold with numerous periods of below freezing temperatures. The cold temperatures forced the wheat into dormancy, which is good for Brazilian wheat.

Under this new more optimistic scenario, wheat stocks are expected to increase in Brazil resulting in lower prices for producers when the harvest gets underway in late August or early September. Even with the increased production of 6.28 million tons, Brazil will still need to import wheat to meet its domestic demand of 10.5 million tons.

Conab estimates that Brazil will still need to import 5.3 million tons of wheat with much of the imported wheat going into northeastern Brazil. Ironically, it is cheaper to import wheat into northeastern Brazil than it is to truck wheat or flower from southern Brazil to northeastern Brazil.

There are virtually no railroads connecting southern Brazil and northeastern Brazil, so the only way to transport grain to northeastern Brazil is by truck over poorly maintained roads.

During the last two growing season, the wheat quality was so poor that much of the wheat was only suited for animal feed and better quality wheat was imported for human consumption. Millers are hoping that the forecast for dryer weather will help improve the quality of Brazil's domestic wheat crop this year.