September 1, 2015

Wheat Production in South America Encountering Obstacles

Brazilian millers are concerned that there will not be enough wheat produced in Mercosul countries to meet Brazil's needed wheat imports. Generally, Brazil only produces about half of the wheat needed to meet domestic demand. Unfortunately, the 2015/16 wheat crop in South America has already encountered problems of lower acreage and adverse weather. The ongoing concern is that the situation could be further aggravated by the possibility of heavy rains during harvest triggered by El Nino.

The wheat crop in the state of Parana in southern Brazil is furthest advanced with approximately 5% of the crop already harvested. The wheat that is currently being harvested encountered very heavy rains during July and as a result, early reports indicate variable yields as well as quality. Both the yields and the quality of the wheat in Parana are expected to improve as the harvest progresses into wheat that was planted later. What continues to be on the minds of all the producers in Parana is the possibility of heavy rains during September and October. Wet weather during harvest is generally the biggest obstacle for successful wheat production in southern Brazil.

Parana is the largest wheat producing state in Brazil followed by Rio Grande do Sul and the wheat in Rio Grande do Sul has been developing normally thus far. Wheat in the state is generally harvested during November.

In neighboring Paraguay, the farmers are also starting the early wheat harvest. The wheat production in Paraguay is right across the border from the state of Parana, so the two crops are grown under the same climatic and soil conditions.

Uruguay also produces wheat and the farmers in that country reduced their wheat acreage by 25% to 30%. After a dry start, the wheat in Uruguay has received adequate rainfall for normal development.

The biggest wheat producer in South America is Argentina and that is where the biggest concerns are as well. The farmers in Argentina reduced their wheat acreage by 20% and adverse weather is expected to cut the production even further. After a relatively long period of dry weather earlier in the growing season, record heavy rainfall in August in parts of central Argentina resulted in a loss of an estimated 500,000 hectares of wheat. El Nino is also forecasted to trigger heavy rains in Argentina, so it remains to be seen if the crop can escape further damage.

The concern in Brazil is that Argentina may not be able to export more than 3.2 million tons of wheat to Brazil, which would force Brazilian millers to look outside of the Mercosul trading block for their needed wheat imports. A 10% tariff is imposed on any wheat purchased outside of the trading block.