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March 25, 2015

Farmers in Rio Grande do Sul to reduce their Winter Wheat Acreage

As farmers in Rio Grande do Sul wrap up their corn harvest and start on their soybean harvest, they are trying to decide what to do about their winter wheat crop. Unfortunately, the prospects for the 2015 winter wheat crop in the state do not look very good.

According to the president of the Federation of Agricultural and Livestock Cooperatives in Rio Grande do Sul (FecoAgro/RS), the cost of producing the 2015 winter wheat crop in the state is expected to increase 18% thanks largely to the weaker Brazilian currency. Many of the inputs for the crop are priced in dollars and a weaker currency increases the price of imports, especially fertilizers.

Farmers in the state also remember the misfortune they encountered with the 2014 wheat crop. Adverse weather during the growing season and then heavy rains during harvest resulted in a crop that was 42% less than in 2013. Much of the wheat produced in the state in 2014 was of such poor quality that it was used for animal feed instead of human consumption. Even though the 2014 crop was smaller than expected, the post-harvest domestic price of wheat in the state fell to below the minimum price guaranteed by the government.

As a result, the 2015 winter wheat acreage in the state is expected to decline from the 1.15 million hectares planted in 2014. In some regions of the state, the wheat acreage is expected to decline as much as 25%, but it won't be that much of a decline statewide. Unfortunately, farmers in the state do not have many options for a second crop other than small grains.

The states of Rio Grande do Sul and Parana usually grow about the same amount of wheat and together they produce over 90% of Brazil's total wheat crop. Farmers in Rio Grande do Sul though do not as many options for their second crop as in Parana. Farmers in northern Parana can plant a second crop of corn, but the climate is generally too cold in Rio Grande do Sul for a second crop of corn so they are generally confined to small grains for their second crop.

FecoAgro/RS has asked the federal government to consider increasing the minimum price for wheat in the state by 19% in order for the farmers to be able to cover their costs. The federal government initially rejected the increase, but they are said to now be reconsidering the increase. Farmers in the state say they cannot cover their costs at the current minimum price especially with higher input costs.

Wheat is the only major grain crop in Brazil for which the country is not self-sufficient. Brazil generally produces about half of its domestic wheat needs with the majority of the imported wheat coming from Argentina. The weaker currency would generally make imported wheat more expensive and farmers are hoping that higher prices for imported wheat may also result in higher domestic prices as well.