October 14, 2014
Brazil Wheat Crop may not be as Good as Conab is Estimating
It was a little surprising that Conab left the Brazilian wheat estimate at 7.67 million tons in their October Report. Many analysts are worried that the recent wet weather in southern Brazil will result in lower yields and poorer quality wheat.
It appears that heavy rains (12 inches) at the end of September in southwestern Parana took a toll on the wheat crop in the region. During the last two weeks, the Secretary of Agriculture in the state of Parana (Seab) has reduced the percentage of the wheat crop that is rated good from 88% to 75%. Approximately 60% of the wheat in Parana has been harvested and there are reports that the latest harvested wheat in the state is of lower quality. Very little of the wheat in Rio Grande do Sul has been harvested, but parts of the state have received even more rainfall than Parana. Over 90% of Brazil's wheat is produced in these two states.
The problem with wheat in Rio Grande do Sul can be illustrated by what has happened in the municipality of Ijui located in the northern part of the state. Agronomist from Emater (the Extension Service) estimate that the wheat yields in the region are already down 35% to 40% compared to initial estimates. Farmers who had been expecting 55 sacks per hectare (47.8 bu/ac) are now hoping for 40 sacks per hectare (34.8 bu/ac).
Heavy rainfall in the region has resulted in a lot of diseases especially rice blast and gibberella. Thus far in 2014, the region has received 80 inches of precipitation with 52 inches of rainfall since early May when the wheat was planted. The wheat crop only needs about 20 inches of rainfall. Rice blast, which has not been a major concern in the state for a number of years, is now the main disease problem. The wheat is approaching maturity and the disease is widespread and advanced in its development. There is no good way to control the disease at this point and farmers are just hoping that it doesn't get any worse.
I think Conab will eventually reduce the 2014 Brazilian wheat estimate from its current 7.67 million ton estimate. I don't think it will fall to last year's production level of 5.5 million tons, but someplace in between those two estimates. Conab is currently estimating that Brazil will import 5.5 million tons of wheat to meet the domestic demand of 12.2 million tons. If the wheat crop in Rio Grande do Sul turns out to be as poor as some are expecting, Brazil may end up importing a million tons more than the current estimate.
In addition to concerns about the yield and quality, domestic wheat prices are also a big concern. The minimum price for wheat guaranteed by the government is R$ 33.45 per sack (approximately US$ 6.33 per bushel), but the average price last week in Parana was R$ 30.50 per sack (approximately US$ 5.77 per bushel) and in Rio Grande do Sul, it was R$ 25.00 per sack (approximately US$ 4.75 per bushel).
Conab has already conducted one Pepro auction to subsidize the price of wheat and two more auctions are scheduled. The government has also indicated that they will purchase wheat for public stocks they will help millers purchase local wheat all in an attempt to support the local price of wheat. At this point, their efforts have not produced many positive results as far as the domestic wheat price is concerned.