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U.S now Brazil's #1 wheat supplier

Luis Vieira 12/12/2013 @ 3:12pm Agricultural freelance reporter from Porto Alegre, Brazil. Editor of AgroSouth-news.com

Wheat prices have been steadily rising over the last few months. If realized, increased purchases from Brazil could provide more upside for U.S. wheat prices.  

On an annual basis, Brazil consumes roughly 10 million tons of wheat, but the country is able to grow only 4.2 million tons because of some destroyed crops in the winter. In addition, Argentina (Brazil’s traditional partner of the Mercosur) has the lowest wheat output in 100 years, due to drought. Argentina is only able to export more than 2.5 million tons due to bad weather government limitations on the international trade of grains. In 2013, the U.S. is expected to sell 3.0 million tons of wheat to Brazil. Last year, the U.S. exported just 32,000 tons to the South American country. 

A tax exemption that started in April has benefited the U.S. and other countries outside of the Mercosur. It offers wheat to Brazil without a 10% import tax. So far, however, the U.S. has been the only country with the quality of grain approved by Brazilian authorities and local importers, who need mostly hard red winter wheat.

The trend of- increased U.S. wheat exports to Brazil is expected to remain, because the Mercosur countries have a stock of only 6 million tons, while Brazil would need to import 7 million tons, according to a projection by Safras & Mercado, a consultancy based in Porto Alegre. 

For Mike Krueger, an analyst at World Perspectives Inc., other issues would be added to conclude that there is a shortage. 

“I think China’s appetite might be larger than most expect, maybe an additional 2 or 3 million metric tons from all origins (added to 4 million tons already purchased). I don’t know how quickly Argentina can get back in the market to Brazil,” he says. 

Brazilian market analyst Luiz Pacheco, a consultant from Curitiba, Paraná, believes that the scarcity tends to be even bigger and that the U.S. is the best commercial offer. 

“As long as there is a shortage of production, Brazil will be buying from the U.S. It is the best commercial option for Brazil,” Pacheco says.

Brazil has extended, through December, the exemption for wheat imported outside of the Mercosur. The current import quota is 2.7 million tons. Mills located in the northeastern part of the country, the main entrance for U.S. wheat, have already lobbied for more U.S. wheat.

Tyler Jameson, assistant director of policy at the U.S. Wheat Associates, believes the trade of grain from the U.S. to Brazil has been a “success,” and it might continue. “As long as the crops are bad down there [in South America], Brazil will continue to buy U.S. wheat,” Jameson says. 

The Mercosur bloc is expected to produce 18.5 million tons of wheat this year. The forecast before the winter frosts in the region were for about 21.5 million tons. 

Paraguay also had significant losses in the bloc. 

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