Analysis: Brazil expects to reduce its dependence on Argentine wheat soon

RIO DE JANEIRO, BRAZIL “Who would say that Brazil is achieving self-sufficiency in wheat? In 10 years, we will be exporting the equivalent of what we consume,” Brazilian President Jair Bolsonaro predicted during a tour of Mato Grosso do Sul at the end of June.

A few days later, the National Supply Company (Conab), under the Brazilian Ministry of Agriculture, ratified the expectation of a record crop of the fine grain in the current campaign by raising from 8.35 to 9.03 million tons its estimate of production in 2022, which, if achieved, would imply a 17.6% jump compared to the 7.68 million tons of 2021.

Thus, Brazil, the always captive market of Argentine wheat, takes the first steps to reduce its dependence on imported grain and to capitalize on the momentum generated by the price hike, accentuated after the Russian invasion of Ukraine.

“In the next five years, Brazil should be self-sufficient in wheat production, which does not mean that we will stop importing to satisfy domestic demand, but it does imply that Brazil will become a wheat exporter,” the executive president of the Brazilian Wheat Industry Association, Rubens Barbosa, told LA NACION.

He added that the current growth in sowing and production, which was favored by the international increase in prices, is also part of a strategy at the national level to achieve self-sufficiency.

With domestic consumption of 12.05 million tons, Brazilian wheat exports in the 2021/2022 season were estimated by Conab at 3.20 million tons, a historical record, which resulted in a final stock of only 488,300 tons. The need to recompose these reserves in the 2022/2023 cycle could conspire against the possibility of surpassing the sales mark. So much so that the agency itself projects them at 2.50 million tons.

For Vlamir Brandalizze, grain market specialist at Brandalizze Consulting, Brazil will reach wheat self-sufficiency “in two or three years if the government’s production promotion policies are maintained in the current direction.

If so, we will see a greater willingness on the part of producers to plant more. Of course, wheat will also be necessary to remain above US$290 per ton in Chicago. The war in Ukraine helped to raise prices, but world demand continues to grow and will provide positive conditions for farmers to sustain the increase in area in the coming years”.

The consultant added that this new season found Brazilian producers capitalized and with market values that offered good chances of profitability with the wheat crop, which had not been the case in previous years.

According to data from the monthly report published by Conab on the 7th of the current, the area destined for wheat in Brazil will be 2.92 million hectares, 6.6% higher than last year’s 2.74 million, while the average productivity is expected at 3092 kilos per hectare, with an increase of 10.5% compared to 2803 kilos in 2021. As of last Monday, planting had advanced over 88.1% of the estimated area.

“Prices were the main reason for the higher wheat sowing in Brazil, and the government’s strategy came in response to those high international prices and the opportunity to reduce the strong dependence on imports”, said Fabio Lima, market analyst of the Brazilian subsidiary of the American StoneX.

This firm estimates the sown area at 3.15 million hectares and the harvest at 9.25 million tons, boosted by weather conditions which so far are favorable for the crops.

Lima also emphasized that to sustain the growth of wheat production in Brazil, high prices will have to be maintained, making the business equation positive in competition with imported grain.

“We have an available area to grow, and now we have the support of the government and Embrapa for this to happen. However, wheat prices must be attractive for the producer to have good profitability”, he explained.

For Barbosa, wheat has good possibilities to add area (as expanded separately), in addition to the south of the country, the core area for the crop, such as the north and northeast of the Cerrado.

“Embrapa’s research is very positive and is helping to extend the planted area and productivity. It remains to improve the logistics issue,” the businessman indicated.

In this sense, Lima pointed out that a good part of the increase in production is focusing on the “tropicalization of wheat, where we will have high logistic costs to take the production to the milling centers. This could be more expensive than importing wheat. However, investment in research can put Brazilian wheat at another level of productivity, which would offset the high costs.”

Based on the wheat boom in Brazil, LA NACION consulted Brazilian specialists about whether this should be a cause for concern for Argentina, which usually exports between 4.8 and 5.5 million tons to the Mercosur partner, whose total imports range between 6 and 7 million tons.

“Not in the short and medium term,” Lima said. And he based his answer on the fact that the world market is short of wheat, especially at the beginning of each year, when supply falls in the northern hemisphere. “Argentina is often sought after by importers, as its prices are attractive in Africa and the Middle East,” he said.

In a middle ground, Barbosa explained that Argentina should not worry because the competitiveness of Argentine wheat is important for mills in the south. However, he added: “Brazil will continue to import Argentine wheat, but in smaller quantities, in the medium and long term”.

Brandalizze stated: “Yes, the Argentine producer has to worry about Brazil producing more because the trend is to grow strongly in production and quality, and the country can even be a competitor of Argentina in the market because the Brazilian harvest comes before the Argentine one (it extends from the end of August to December).

At the peak of the harvest, we will take advantage to export, and in the off-season, from March to August, we will import part of the domestic consumption from Argentina, but with less dependence year after year”.

With information from La Nación