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October 20, 2016

Brazilian Wheat Crop Negatively Impacted by Heavy Rains (Again)

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

The state of Rio Grande do Sul is the second leading wheat producing state in Brazil after Parana and very heavy rains this week in the state have negatively impacted the maturing wheat crop. This the third year in a row that excessive rains during harvest have imperiled the wheat crop in the state. The wheat harvest in Rio Grande do Sul is just getting started, whereas in the state of Parana, the wheat is 70% harvested. These two states are responsible for producing 90% of Brazil's wheat production.

Some areas of central Rio Grande do Sul have already received as much as 15 inches of rain this week and there is more rain in the forecast for the remainder of this week and next week as well. Estimates are that 10% of the wheat crop has already been lost and loses could be as high as 30% if the forecast for heavy rains again next week verifies. In addition to yield losses, heavy rains during harvest also results in poor quality grain as well.

Prior to these rains, the Brazilian government had already set in motion plans to help prop up the wheat prices in southern Brazil that had fallen to below the minimum price guaranteed by the government. The minimum guaranteed wheat price in southern Brazil is R$ 38.65 per sack or approximately $5.50 per bushel. The current market price in the city of Ijui in Rio Grande do Sul is $33.40 per sack (approximately $4.75 per bushel) and in the state of Parana it is approximately R$ 34.00 per sack (approximately $4.80 per bushel).

Price support programs in Brazil usually take the form of auctions under the Prepo program where farmers can sell a portion of their crop to the government at the minimum price. Preparations for these Prepo auctions are ongoing, but the actual auctions have not yet been announced. Ironically, if the rain-induced loses end up being as high as 30%, these auctions may not be needed. A reduced supply of good quality wheat could result in prices moving up to if not surpassing the minimum price guaranteed by the government, which would allow the government to forgo the auctions.

Brazil only produces about half of the wheat needed for domestic consumption with the remainder imported mainly from neighboring Argentina. The Argentine Minister of Agriculture recently announced that they expect Argentina will export 4 million tons of wheat to Brazil.