Brazil mulls duty-free wheat imports, as harvest disappoints

Brazil’s farm ministry is seeking approval for a quote of duty-free wheat imports to encourage buy-ins of the grain, and help fill a void enhanced by a disappointing domestic harvest.

The ministry revealed a plan to allow in 750,000 tonnes of wheat from any origin, without the 10% tariff which typically applies to purchases from outside South America’s Mercosur trade bloc.

The move comes amid a wheat harvest which has shrunk further than had been expected, with Conab, the official crop bureau, earlier this month cutting its estimate for the crop by 340,000 tonnes to a five-year low of 4.88m tonnes.

That left it well short of demand needs of more than 11m tonnes, enhancing the reliance of Brazil, a structural wheat importer, on foreign supplies of the grain.

Argentina, and where else?

The country typically relies on Mercosur partner Argentina for the bulk of its supplies, and indeed officials have pegged in shipments of 4m tonnes on that route, according to influential analyst Michael Cordonnier.

However, Dr Cordonnier added that the farm ministry “estimates that Brazil will need to import approximately 7m tonnes of wheat to meet the domestic demand of 11.5m tonnes”.

Often, Brazil also turns for supplies also to North America, an origin of higher quality wheat, and at relatively close proximity, limiting shipping costs.

Indeed, Dr Cordonnier said that given low expectations for the quality, as well as quantity, of the Brazil’s own harvest, the country “may need to import more high quality wheat than normal to meet the demand of domestic millers”.

However, Brazil has in the past gone further afield for purchases, such as to Germany, typically a supplier of hard wheat although shipments from that origin hampered by a disappointing harvest.

Conab earlier this month highlighted the large harvest in Russia, which has voiced repeatedly ambitions to send wheat to Brazil.

Sowing setbacks

The bureau’s crop downgrade earlier this month took above 1.8m tonnes the expected retreat in Brazilian wheat output from last year’s record high.

The weaker harvest reflects in part lower sowings, estimated down 9.5% at 1.92m hectares, thanks to low prices, which deterred farmers from seeding the crop, and weather setbacks which prevented planting of some crop which was intended.

Conab restated in its report that farmers in Rio Grande do Sul, the second-largest wheat-growing state, “faced difficulties in advancing cereal planting, mainly due to the high volume of precipitation in the sowing period”.

Frost, hail, drought

However, productivity prospects have shrunk too, with Conab’s latest downgrade led by a cut to 2.55m tonnes per hectare in the average yield, a drop of 19.8% year on year.

The bureau highlighted in particular a growing season in Parana, the top producing state, marred by frost, hail and drought.

Dr Cordonnier said that in Rio Grande do Sul, “heavy storms accompanied by high winds and occasional hail have impacted the crop just as the harvest is beginning”.

“The quality of the crop is also less than desired.

“Agronomists are reporting that some of the wheat heads are still green while others are completely dry with the difference being caused by frosts earlier in the growing season.”