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June 22, 2015

Brazilian Wheat Imports Expected to decline in 2015

Farmers in southern Brazil are in the midst of planting their 2015 wheat crop and Brazil is expected to produce a record wheat crop of 6.76 million tons in 2015. Farmers in Parana have planted 82% of their wheat with 33% planted in Rio Grande do Sul with 100% planted in Paraguay, 85% planted un Uruguay, and 22% planted in Argentina. Early crop development is favorable in all four countries which should result in a bigger wheat supply compared to 2014.

Brazil needs to import approximately half of its wheat needs and most of that generally comes from neighboring Argentina. That was not the case though in 2014 when the United States emerged as the principal supplier of wheat for Brazil, but it looks like Argentina will once again be the principal supplier of imported wheat in Brazil in 2015. During the first five months of 2015, Argentina supplied 82% of the wheat imported into Brazil compared to 8% from the United States. During all of 2014, North American wheat represented 46% of Brazil's wheat imports compared to 27% from Argentina.

Last week, the Argentine government authorized another one million tons of wheat exports bringing the total thus far to 4.7 million tons and further increases in the export quota is expected. Most of that increased level of exports is expected to go to Brazil.

Higher transportation costs and import tariffs from non-Mercosul countries makes U.S. wheat more expensive in Brazil. According to Safras & Mercado, wheat imported from the U.S. is 15% to 20% more expensive than wheat produced in Parana while wheat from Argentina is 9% more expensive than wheat produced in Parana.

The domestic demand for wheat in Brazil is expected to soften due to economic problems and that combined with increasing production is expected to result in less wheat imports into Brazil in 2015. According to the president of the Pacifico Wheat Mill, Lawrence Pih, wheat imports into Brazil may decline 20% in 2015 compared to 2014.

While the prospects are good for the current wheat crop being planted in Brazil, the total production may depend on El Nino in the Pacific Ocean. Some forecast are calling for a strengthening of the El Nino from a mild to a strong event by later this year just when farmers in Brazil would be harvesting their wheat. A strong El Nino is usually associated with heavier than normal rains in southern Brazil, which would not be good news for the wheat crop. The biggest problem for the Brazilian wheat crop is generally heavy rainfall at harvest time that can lower quality and yields.

The 2014 wheat crop in Rio Grande do Sul was devastated by heavy rains at harvest resulting in lower yields and very poor quality. Much of the wheat produced in that state last year was only fit for animal consumption. Farmers in the state are certainly hoping for better results with the 2015 crop.