Record harvest of wheat and reduction in consumption reduce Brazilian imports
18/11/2022
A severe drought, followed by several frost episodes, is expected to cause Argentina’s wheat crop to finish 40% below initial estimates, with around 12 million tonnes. As Brazil is the largest consumer of Argentine grain, with purchases close to 6 million tonnes each season, experts indicate that domestic mills, especially in the Northeast region, will need to seek wheat from other sources, such as Russia and the United States.
Although prospects indicate an increase in purchases from other countries as of May 2023, some mills in the Northeast region have already moved and several sources confirm the arrival of seven ships with Russian grain to Brazil in the coming months. “The harvest loss has already made the Argentine wheat price rise at an unusual time, close to harvest. So, mills in the Northeast have been buying Russian grain, which is cheaper,” said Christian Saigh, head of São Paulo’s wheat industry union (Sindustrigo).
On Wednesday, the available Argentine wheat FOB price (without import costs) was priced at $370 a tonne on average, while the Russian cereal was $330. The French/European product was priced around $350 a tonne and the American or Canadian at $430.
The Argentine harvest begins this month and lasts until January. Usually, trade with Brazil intensifies at the beginning of the year, so Mr. Saigh believes that the product available for export from the neighboring country will run out near May. “The war in Ukraine has made other countries see Argentina as a supplier of wheat, so Brazil has more competition,” he said.
Luiz Carlos Pacheco, analyst and partner at T&F Consultoria, recalled that it is difficult to know how much Argentina has available at the moment because the export quota released by the government refers to what the trading companies can buy and not to what has effectively left the country. “Of the 10 million tonnes quota, 8.5 million tonnes were traded and the taxes were already paid. This does not mean that they reached any external destination.”
Last week, the Rosario Board of Trade reduced its forecast for Argentina’s wheat crop by 1.9 million tonnes, to 11.8 million tonnes in 2022/23. The week before, the Buenos Aires Grain Exchange also reduced its estimate by 1.6 million tonnes, to 12.4 million tonnes. The initial calculation for the season was 20.5 million tonnes. In the 2021/22 cycle, the country produced 22.5 million tonnes of wheat.
Despite this scenario, two issues can make the need for Brazilian imports lower than it would be in other historical moments. The first is that Brazil will have a record harvest of wheat, with 9.5 million tonnes, according to the National Supply Company (Conab). This will allow an internal rearrangement of the grain, which is likely to migrate from Rio Grande do Sul to Paraná, where there was also a harvest loss, and São Paulo.
Another point is that the mills are expected to process a lower amount this year in comparison to 2021, due to a reduction in consumption. “Maybe inflation has scared consumers, but the expected increase in demand due to the cash-transfer program Auxílio Brasil did not occur. The market is flat,” said Alexandre Sales, CEO of Ceará-based mill Santa Lúcia.
Santa Lúcia has already imported the 50,000 tonnes it needs this year, but it does not know what 2023 will look like. “We are trying year by year to reduce this dependence on imported grain and have been successful with the incentive to plant in the Northeast region,” said Mr. Sales.
Mr. Saigh, with Sindustrigo, said that the entire industry feels this contraction in consumption after the peaks during the pandemic, in 2020 and 2021. Brazil imported 4.6 million tonnes between January and September, compared to 4.9 million tonnes in the same period in 2021.
Daniel Kummel, CEO of Moinho Arapongas and head of Paraná’s wheat industry union (Sinditrigo), recalls that Brazil has a quota of 750,000 tonnes exempt from the Common External Tariff (TEC) for purchases outside the Mercosur and is likely to use it in 2023.
But while Canadian and U.S. wheat can be imported by any region of the country, Russian grain can only be purchased by mills located on the coast. The Ministry of Agriculture restricted the entry of Russian grain a few years ago to mitigate risks with the possible entry of pests, fungi, and weeds.
Mr. Pacheco, from T&F, also recalled that some trading companies will prefer not to buy Russian grain while the war continues for fear of restrictions from Western governments. “We know that multinationals can receive payments even in reais to avoid sanctions on bank payments, but it is always risky.”
By Fernanda Pressinott — São Paulo