July 22, 2013

Argentine Restricts Wheat Exports Impacting Brazil's Millers

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

Brazilian agricultural production continues to grow at a healthy pace with the one exception of wheat production. Wheat is the only major crop for which Brazil is not self-sufficient, so the country must rely heavily on imports to meet its domestic needs. Brazil is the eleventh largest consumer of wheat in the world, but does not rank in the top fifteen producers of wheat.

In 2013 Brazil is expected to produce 5.1 million tons of wheat and import 7.2 million tons. Normally, Brazil obtains most of its imported wheat from neighboring Argentina. Last year for example, Brazil purchased 93% of its imported flower and 77% of its imported wheat from Argentina. The recent announcement by the Argentine government that wheat exports going forward would be restricted means that Brazil needs to source its wheat imports from the U.S., Canada, the European Union, or any other source that has available supplies.

Wheat production in Brazil has an uneven history. The first efforts by the government to improve wheat production occurred during the presidency of Juscelino Kubitschek during the 1950's with a plan to product 1.5 million tons of wheat, but the plan was never implemented and wheat production in 1962 was a mere 370,000 tons.

In 1962 the government created the National Wheat Purchasing Commission which purchased all the wheat produced in Brazil and then resold it to millers and bakers. The goal of the commission was to incentivize wheat production. The military dictatorship, which assumed control of Brazil in 1964, established subsidies to increase wheat production and these policies remained in place until 1990 when a more open-market policy was implemented. Between 1985 and 1989 Brazil was nearly self-sufficient in wheat producing 93% of its domestic needs. Since that period though, Brazil has become more heavily dependent on imported wheat supplies.

The two basic problems of wheat production in Brazil is the competition of cheaper imports from Argentina and the poor quality of wheat produced in Brazil. The two major wheat producing states in Brazil are Parana and Rio Grande do Sul in southern Brazil. The biggest problem for wheat producers in these two states is the potential for hot and humid conditions during harvest which is generally October in Parana and November in Rio Grande do Sul. The wheat harvest usually coincides with the start of the summer rains which can force farmers to delay their wheat harvest resulting in poor quality grain.

In a recent report issued by the National Agriculture and Livestock Confederation of Brazil (CAN), they emphasized the need for more research in improving the quality of wheat produced in southern Brazil and the need to expand wheat production in the cerrado regions of central Brazil. In fact, some of the highest wheat yields in Brazil are now being achieved in the cerrado regions of Goias, Minas Gerais, and the Federal District. Wheat production in central Brazil is via irrigation, which allows for higher yields and improved grain quality.