July 30, 2013

Record Cold Temperatures Hit Southern Brazil Last Week

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

Last week was very cold in southern Brazil with widespread frost, freezes, and even snow at the higher elevations. Hundreds of cities set record low temperatures and many locations in southern Brazil experienced freezing temperatures for four nights in a row resulting in damage to some of the wheat, sugarcane, and coffee crops in the region.

Winter wheat - Of immediate concern is the early maturing wheat in northern Parana that was already in the heading and flowering stage. The majority of wheat in the state had not yet reached the heading stage, but the wheat that was headed probably suffered some losses. The Brazilian Wheat Industry Association (Abitrigo) estimates that the state of Parana will lose approximately 10% of its total wheat crop with the majority of that being the early maturing wheat. The reduced yield of the early maturing wheat, which will be harvested in September, has millers very concerned because that was the wheat they were counting on to replenish their depleted supplies. How much wheat was lost won't be known for probably another week.

There had already been concerns about the wheat crop prior to the freezing temperatures due to increased disease pressure resulting from earlier heavy rains. Additional loses could still occur in October and November if there are more heavy rains during the harvest period.

Domestic wheat prices in Brazil usually start to ease in September with the arrival of the new crop, but this year wheat prices will probably not ease until November or December due to tight supplies and the need to import wheat from outside of their traditional suppliers in South America. Argentina usually supplies the vast majority of Brazil's imported wheat, but that is not going to happen this year due to even tighter supplies in Argentina. That will force Brazilian millers to look toward the United States, Canada, or Eastern Europe for additional supplies. Brazil is traditionally one of the leading wheat importers behind such countries as China and Egypt.

Conab is estimating that Brazil will produce approximately 5.2 million tons of wheat and import 7.2 million tons. Conab will probably not reduce their wheat estimate in their August report because it would be too soon to have an accurate assessment of the damage caused by the cold weather.

Sugarcane - Sugarcane producers in southern Brazil are also concerned that the cold temperatures impacted their crop as well. Sugarcane loses due to freezing temperatures can only be assessed about a week after the cold snap, so there have not been any official loss estimates published as yet.

Mill operators want to harvest the most severely impacted sugarcane as quickly as possible before the cane starts to deteriorate, but the problem is that each mill can only process a certain amount of sugarcane per day. Therefore, it is unlikely that they can process all the sugarcane that was impacted by the cold temperatures before the crop deteriorates. Under a worst case scenario, some of the sugarcane may not be harvested at all resulting in a lower tonnage being processed and therefore lower sugar and ethanol production.

For sugarcane that had just been planted the result of the cold temperatures may be much worse. If the growing points of the young sugarcane plants are frozen, then the entire field must be torn up and replanted resulting in a tremendous additional expense for the mill operator and another year of lost income from the field.

After several years of disappointing sugarcane crops, this was expected to be somewhat of a recovery year for mill operators in southern Brazil, but the record cold temperatures now puts that recovery in doubt.