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May 9, 2016

Wheat Production to Increase in Argentina Decrease in Brazil

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

Farmers in South America are in the process of harvesting their summer crops and starting to plant their winter small grains. In Argentina, farmers are expected to take advantage of new governmental policies to expand their wheat acreage. President Macri eliminated the export tax on wheat and corn and he also eliminated export quotas for both crops. As a result, farmers are expected to increase their wheat and corn acreage in the upcoming growing season.

According to the consulting group Trigo & Farinhas, farmers in Argentina are expected to produce 16 million tons of wheat in 2016, which would be enough to allow 8.7 million tons of exports, mostly to Brazil. Wheat production has been on the decline in Argentina for years, so this will be the first increase in acreage in many years. Brazil always needs to import wheat and Argentina is usually the source of most of their wheat imports, but in recent years, Brazil was forced to source wheat from other countries due to the declining production in Argentina.

In contrast to Argentina, Brazilian farmers are expected to again reduce their wheat acreage in 2016. Brazilian farmers have been frustrated by heavy rains during harvest for the last two years that has resulted in very disappointing yields and poor quality grain. As a result, they are expected to again reduce their wheat acreage this growing season.

For Brazilian farmers who still intend to plant wheat, they are hoping for a better growing season this year due to the transition from El Nino to La Nina. For the last two years farmers have been frustrated by heavy rains at harvest time, but Somar Meteorologia is forecasting the weather in southern Brazil for the next six months to be in the normal range as opposed to the heavy rains generated by El Nino

May is the main month for planting winter wheat in the state of Parana, which is Brazil's largest wheat producing state, but only a small percentage of the wheat has been planted thus far. The start of planting had been slowed due to dry weather during most of April. Rains finally moved across the state last week and conditions are now more favorable for wheat planting.

The Department of Rural Economics for the state of Parana (Deral) again lowered their estimate for the 2016 wheat acreage in their latest monthly report. They are now estimating that the wheat acreage will decline 14% compared to last year to 1.15 million hectares. In their March report, they estimated the wheat acreage would be down 11%. Deral is estimating the 2016 wheat crop in Parana will be 3.5 million tons, which is down from their last estimate of 3.6 million tons.

As farmers in Brazil reduce their wheat acreage, they are replacing the wheat with increased safrinha corn production which offers much better returns especially this year due to the high domestic corn prices in Brazil.

Farmers in Paraguay are also expected to reduce their wheat acreage by 30% in 2016 due to low prices and a lack of financing.