Brazil: Turning into the World’s Second Largest Importer of Wheat 7/27/2006
G.Bastos
Brazil will cease to be the world’s 4th largest wheat importer to occupy the 2nd position in the rank (or maybe the first position).
The sowing season in Brazil is over and Agroconsult’s latest estimates evince a further decline than what was forecast two months ago, when producers were still making decisions. The total area under cultivation in 2006 must drop by 25.9%. The state of Paraná, which accounts for 48% of the production, had a reduction of 1/3 in area under cultivation, going from 1.27 million ha (3.14 million acres) down to 0.85 million ha (2.09 million acres). In the second largest producer, the state of Rio Grande do Sul, there was a 17.1% reduction, i.e., 0.7 million ha (1.73 million acres). Thus, a 25.1% smaller crop production of 3.7 million tons (137.68 million bu) is estimated. Among the reasons for such a drastic reduction are the producers’ lack of revenue and the ongoing draught, which in some regions started prior to the sowing season.
In Argentina, the country where most of the wheat imported by Brazil comes from, production, still in its sowing phase, will probably not reach the level of 16 million tons (588 million bu) either, as it was two years ago. Even though planting decisions pointed to a growth of 15% in cultivation, with producers encouraged by good prices in their market, the expected abundant rainfall has not yet occurred in some of the producing regions. And due to this weather constraint, in the phase where 67% of the area has been sown, expectations have changed. The area under cultivation, which should go back to 6 million ha (15 million acres), was revised last week by the “Bolsa de Cereales” to 5.45 million ha (13.47 million acres).
In view of this decrease in production in Brazil (and not taking into consideration grain quality, which will be subject to weather adversities), the country will have to import at least 7 million tons (257.20 million bu) during the crop year of 2006/07, almost the same volume as that of 5 years ago. The problem is that the Argentine government has already limited wheat exports to 7.5 million tons (275.57 million bu) in an inflation curbing effort, and so far Brazil has records of only 4.1 million tons (150.65 million bu) out of this total. Brazilian authorities, in turn, worried about inflation levels as well, now consider reducing the “Tarifa Externa Comum do Mercosul – TEC” (Mercosur Common external tariff) on wheat imports from non-member countries, specifically the US and Canada, whose import tariff is currently of 18%.
Today, importing from the US costs USD 270-280, depending on the region in Brazil (a difference of USD 55-78 in relation to the wheat imported from Argentina). With the import tax reduction or exemption, the American wheat will become more competitive in the Brazilian market.
Quickies from South America
- Insufficient rainfall keeps affecting the agricultural regions on the Argentine Pampas. This may result in a sown area even smaller than what has been recently estimated. The cultivation zone in most of the region of Córdoba and Santa Fé shows good vegetative growth. Nonetheless, this area is subject to late frosts. - Some American consulting companies keep pointing to a reduction of only 5% in soybean area in Brazil for the 2006/07 crop season (with the sowing season scheduled to start in September/October). We deem that there may be a larger reduction – of approximately 15%. What impact would a Brazilian crop production below 50 million tons have on Chicago prices in December/2006 (when planting decisions are confirmed) and in 2007?
