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October 5, 2011

Brazil's Wheat Production Falls Short of Expectations

Brazilian farmers continue to have a hard time producing high quality wheat and in fact, in 2011/12, they will only produce enough wheat to meet half of the domestic demand. Conab is expected Brazil to harvest 5.1 million tons of wheat compared to 5.9 million in 2010/11, or a reduction of 14%. The lower production is the result of reduced acreage and detrimental weather. The wheat crop in Parana was negatively impacted by two episodes of freezing temperatures in June and July when a significant portion of the crop was flowering and filling grain.

The state of Parana is the number one wheat producing state in Brazil and farmers in the state reduced their wheat acreage from 1.75 million hectares in 2010/11 to only 1 million hectares in 2011/12. The total wheat production in the state is estimated at 2.3 million tons compared to 3.4 in 2010/11 or a reduction of 28%. Santa Catarina's wheat production is expected to decline 12% and only the state of Rio Grande do Sul is expected to show a slight increase in production.

Many farmers in Parana opted to grow more safrinha corn instead of wheat due to the low profit potential for wheat. The farmers in Rio Grande do Sul increased their wheat acreage by 4% to 850,000 hectares and the state is expected to harvest approximately 2 million tons of wheat.

Farmers in Brazil do not like to grow wheat due to the low yields, potential quality problems and low prices due to increased competition from neighboring countries. Wheat is the largest food crop in Brazil for which the country is not self-sufficient. The domestic consumption of wheat in Brazil is estimated at 10.5 million tons, which means that approximately 5 million tons of wheat needs to be imported primarily from Argentina, but also from Russia as well.

If corn prices remain strong, it is anticipated that farmers in Brazil will once again reduce their wheat acreage especially in Parana and opt to grow more safrinha corn, which is much more profitable.