South America Calling

Will Brazil import wheat from the U.S. in 2015?

Last week, the Brazilian Wheat Industry Association (Abitrigo) said probably not, since Brazil and Argentina look likely to produce well in 2014-15.

However, Trigo & Farinhas, a local wheat consultancy, subsequently estimated that Brazil will still import 1 million metric tons (mmt), and DTN Cash Grains Analyst Mary Kennedy notes the idea Brazil will need to import U.S. wheat next year is in the market.

One factor in the supply and demand mix is the wet weather in Rio Grande do Sul, Brazil's No. 2 producing state, which has caused fungus attacks and will likely affect quality ahead of the harvest, which has just got underway.

According to the state agricultural secretariat, early harvested crops have registered average yields and grain of sufficient quality, but there is a concern about crops in the northwest of the state, where up to 40% of plants have been attacked by fungus.

Brazil's government pegs the local 2014-15 wheat output at 7.6 mmt, while the U.S. Department of Agriculture puts output at 6.5 mmt.

But it is worth noting that U.S. wheat will be imported into the north and northeast of Brazil, a region supplied by Argentina rather than southern Brazil.

That seems counterintuitive until you learn that Brazil produces the overwhelming majority of the wheat in the south of the country and the cost of shipping wheat from the southern port of Rio Grande to the northeastern port of Fortaleza is actually greater than importing from Buenos Aires.

The most efficient means of sending Brazilian wheat to the northeast would be by ships along the coast. But the ships are not available because of government restrictions on imports, while taxes are heavier on cargoes transported within Brazil than on those imported from the Mercosur trade bloc, which also includes Argentina, Uruguay, Paraguay and Venezuela. When you add in Brazil's sky-high port costs, you see why Brazil doesn't supply part of its own market.

Argentina will only start making new-crop wheat available in the second quarter of 2015, opening up an opportunity over the next four months for some U.S. shipments.

Since the beginning of 2013, Brazil has imported approximately 5.5 mmt of wheat from the U.S.

(AG)

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