March 30, 2020

Parana Farmers to Increase 2020 Winter Wheat Acreage by 5%

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

Wheat is the one major crop for which Brazil is not self-sufficient and in their first estimate of the 2020 wheat crop released last Friday, The Department of Rural Economics (Deral) estimates that farmers in the state of Parana will increase their 2020 winter wheat acreage by 5% to 1.08 million hectares. If the weather cooperates during the growing season, the state could produce 3.5 million tons of wheat, which would represent an increase of 63% compared to last year's troubled crop.

Even though it is possible that the state could produce a record wheat crop in 2020, specialists from Deral are reminding everyone to restrain their optimism because for the last several years, the wheat crop in the state has been beset by adverse weather such as dry weather, frosts, and heavy rains at harvest.

The increased winter wheat acreage is due to record high domestic wheat prices in Brazil which averaged R$ 54.00 per sack during March. I am always reluctant to convert domestic Brazilian prices to dollars per bushel because it depends on what exchange rate is used. For example, in recent weeks, I have been using an exchange rate of 4.15 Brazilian reals per dollar to make the conversion to dollars per bushel.

If I used that exchange rate, then R$ 54.00 per sack would translate to $5.91 per bushel. The current exchange rate is actually 5.1 Brazilian reals per dollar and if I used that exchange rate, then R$ 54.00 per sack would translate to $4.81 per bushel. The bottom line is that Brazilian farmers are receiving record high domestic grain prices because the Brazilian currency has devalued 18% over the past six weeks.

Winter wheat and safrinha corn compete for the same acreage in much of Parana and the acreage increase for wheat would have been even higher were it not for record high corn prices as well. Farmers in Parana will plant their winter wheat in April and May and harvest the crop in September and October. Parana is the largest wheat producing state in Brazil.

Brazil is one of the world's largest wheat importers because Brazil only producers about half of its domestic demand for wheat. Most of its needed wheat imports comes from neighboring Argentina. Conab is estimating that Brazil will need to import 7.0 million tons of wheat to meet domestic demand.