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December 14, 2017

Brazil Wheat Crop Disappoints, will Allow Russian Wheat Imports

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Brazilian wheat farmers are disappointed once again with their wheat production. Estimates for the Brazilian wheat crop continue to decline due to adverse weather during the growing season. The problems started early when dry weather delayed the planting and it got worse with several episodes of frost when the crop was flowering and filling grain. The season ended on a low note when heavy rains delayed the harvest.

Therefore, not only were the yields disappointing, the quality of the wheat was also poor. The consulting group Consultoria Trigo & Farinhas recently lowered their estimate of the 2017/18 Brazilian wheat crop to 4.1 million tons, which is down 14% from their last estimate and 39% lower than the 2016/17 Brazilian wheat crop.

The state of Parana is the largest wheat producing state and the Department of Rural Economics (Deral) estimates that the state will produce 2.2 million tons of wheat. Rio Grande do Sul is the second largest producer and Emater-RS estimates that the state will produce 1.2 million tons. These two states are responsible for approximately 83% of Brazil's wheat production.

Of the 4.1 million tons, approximately 1 million tons is poor quality and it will only be used for animal rations either inside or outside of Brazil. Therefore, only 3.1 million tons will be available for millers and the estimated domestic demand is in the range of 10.5 to 11.0 million tons.

As a result, Brazil will need to import approximately 7.5 to 8.0 million tons of wheat. The bulk of the imports will come from neighboring Argentina, but there may be some wheat imports from outside the Mercosul trading block from the United States, Canada, or even Russia.

The Brazilian Minister of Agriculture has been working with his Russian counterpart on drafting phytosanitary standards for grain trade between the two countries. Brazil has decided to allow Russian wheat to be imported into Brazil provided that the wheat does not circulate within the country and planting the wheat in Brazil would be prohibited. Therefore, the wheat must be milled either at the port or in close proximity to the port. This is similar to what Russia does when they import Brazilian soybeans.

The import and milling facilities where the wheat will be processed have not yet been identified.

By allowing Russian wheat imports, the Brazilian Minister of Agriculture hopes it will persuade Russia to once again allow Brazilian meat imports. Brazil and Russia have had recent disputes concerning the importation of Brazilian meat into Russia. The Russian officials have prohibited Brazilian meat imports over concerns about sanitary conditions in Brazilian meat processing facilities. The Brazilian officials claim the prohibition on Brazilian meat is all about protecting domestic meat producers.