U.S. wheat to South America jumps
Consumption is likely to increase in Brazil in 2013 in almost every sector. The food sector is not an exception, but one of the main beneficiaries of the expansion. The U.S. could potentially benefit from that increased consumption by exporting an increased amount of wheat to South America's most populated country. Yearly, Brazil imports approximately 7.5 million tons of wheat, and imports have more than doubled in three years.
The scenario that could potentially boost imports from the U.S., however, is not consumption expansion in Brazil, but trade policies from Argentina.
Brazil is largely supplied by its neighbor with regard to wheat. In recent times, however, Argentina has been hurt by limits of commercialization imposed through its government, making Argentine unable to export the previous amounts of wheat. In 2012-2013, Argentina is expected to produce 11.5 million tons of wheat – down from 14.7 million in 2011, according to the USDA. In the Buenos Aires stock exchange, the projection is even more pessimistic: 10.1 million tons for the season. That would be the worst season since 1986.
This opens up the opportunity for the U.S. to increase exports to South America. Estimates from Lawrence Pih, president of Moinho Pacífico, the largest milling group in South America, say that next year over 3 million tons of wheat will be imported from outside of the Mercosur, the free-trade bloc that includes Brazil, Argentina, Uruguay, and Paraguay, and most recently, Bolivia and Venezuela.
Argentina is not the only supplier of wheat to Brazil. Other members of Mercosur such as Uruguay and Paraguay account for 1.2 million tons of the Brazilian wheat imports so far in the year, while Argentina has shipped 1.0 million tons. Until November, the American slice was 54,000 tons, according to the Brazilian Association of Wheat Industry.
The Brazilian wheat production is not likely to increase significantly in the short-term, according to Sérgio Roberto Doto, general manager of Embrapa Trigo, the wheat department of the Brazilian agricultural research company.
In Brazil, wheat is only produced in the three southern states of Rio Grande do Sul, Paraná, and Santa Catarina. The current crop is 4.8 million tons, affected by a reduction generated by a summer drought. Even if the crops recover next year, production will not increase more than 10% because of a lack of competitiveness on the export market. “There are not logistical conditions to increase the domestic supply," said Doto. In Brazil, wheat is mostly distributed in trucks, and transporting it to the populated cities can be difficult.
Even though Brazil has tight wheat stocks, the Chicago Mercantile Exchange prices indicate that the world has a 'supercrop.' Last week, wheat was traded at US$7.93 a bushel in Chicago, a record low in recent years.
Luis Vieria is a contributor for Agriculture.com and Successful Farming magazine in Brazil.