South America Calling

Heavy, consistent rain over the last two months has ruined what promised to be a decent wheat crop in the southern Brazilian state of Rio Grande do Sul.

As a result, Brazilian crop forecasts are plummeting.

Last week, Brazil's Agriculture Ministry cut its wheat crop forecast to 7.0 million metric tons (mmt) from 7.7 mmt last year due to the quality damage caused by the rain just when harvest was beginning in the No. 2 producing state.

However, several private surveys put the crop below 6.5 mmt.

"The rain has hit the crop badly, and it will certainly not meet expectations," said Elcio Bento, wheat analyst at Safras e Mercado, a local farm consultancy.

He forecasts the crop will be just 6.35 mmt after the rains compounded losses caused by disease infestation and hail earlier in the season.

Harvesting is now approximately 75% complete in Rio Grande do Sul. Farmer frustration at the poor quality of the later-harvested wheat is rising, with yields and quality 60% below expectations in some areas, according to the state agricultural department.

It seems every year there is a problem with Brazil's wheat crop. Last year, the crop was severely damaged by frost in Parana, the No. 1 producing state.

Brazil-wide output will still be greater than the 5.5 mmt produced last year, due to a 23% increase in planted area. But Brazil will have to import much more than anticipated in the 2014-15 season.

The South American ag giant is one of the most important buyers on the international wheat market. Argentina has traditionally supplied Brazil's wheat, but the decline in production there, combined with export restrictions and quality problems, has prompted Brazil to look more to the U.S. for supply.

Indeed, over the last couple of years, Brazilian millers have been regularly importing large amounts of U.S. wheat.

This year, Brazil on two occasions lifted the TEC tariff on wheat imported from outside the Mercosur trade bloc, which includes Brazil, Argentina, Paraguay, Uruguay and Venezuela, on a number of occasions. But importers brought in North American wheat even when the 10% tariff was in place.

U.S. wheat is most attractive in the north and northeast, which are far from Brazil's wheat-producing regions and Argentina, and where vessels carrying imports from outside the Mercosur are not subject to the 25% merchant ship tax on freight costs

But mills in the south and southeast of the country have been importing even more than the north and northeast this season.

Brazil will have to import around 6 mmt of wheat next season, pretty similar to last year. The millers think U.S. imports will drop from the 2.5 to 3 mmt seen in 2013 and 2014, but not by as much as many thought six weeks ago.

(AG)

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