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October 10, 2011

Canola Offers Alternative to Wheat Production in Southern Brazil

Farmers in Rio Grande do Sul are preparing to harvest their 2011 canola crop. Commercial canola production in Brazil started less than a decade ago and in certain regions of Rio Grande do Sul it is taking over a portion of the acreage that was traditionally devoted to wheat production. The canola acreage in southern Brazil (46,000 hectares) is still very small compared to the 2.1 million hectares of wheat grown in the country.

Canola is well adapted to the winter climate of southern Brazil, but it does not tolerate long periods of freezing temperatures shortly after germination and during flowering. Canola in southern Brazil is planted between April and June and harvested in October or November. Canola yields usually average in the range of 1,500 kg/ha and the price of canola is based on the price of soybeans.

Canola also offers a good crop rotation because soybeans appear to do quite well after a crop of canola, better than after a crop of wheat.

One of the big advantages for canola production is that canola has much more liquidity than wheat. Farmers can forward contract their canola production with vegetable oil processors in the region, which is not possible with wheat. Canola yields are somewhat lower than wheat, but the domestic price for canola is double that of wheat, so farmers actually make more money growing canola.

For two years in a row, farmers in southern Brazil have been very disappointed in the wheat prices offered by the millers in the region. For most of those two years, the market price for wheat was below the cost of production and farmers were forced to sell their wheat to the government at a guaranteed minimum price. Farmers do not like to do that because it is a cumbersome process and payments can be delayed.

The canola oil produced in Brazil is in high demand from food manufactures in Brazil as well as biodiesel producers. Soybean oil is the principal vegetable oil used in biodiesel production (80% of the total), but alternative oils such as canola are being promoted by the government. Canola will never compete with soybeans in Brazil, but in southern Brazil, it is becoming a viable alternative to wheat production.