Brazil will seek wheat in the U.S., Canada and Russia after the shortfall in Argentina

A shortfall of wheat crops in Argentina by adverse weather conditions such as drought and frost will lead Brazil to seek more significant volumes of grain from alternative sources, such as the United States, Canada, and Russia, to meet their needs, evaluated market experts.

In the last commercial year (2021/22, August/July), Brazil imported only about 155 thousand tons from countries outside Mercosur after having bought almost 900 thousand tons in the USA, Canada, and Russia in the previous year, according to data from the Brazilian government.

In 2022/23, because of the weather problem in Argentina and excessive rains that reduced the quality of the essential Brazilian producer Paraná, the country will buy outside South America at least 1 million tons, according to analysts.

“Usually, Brazil pulls about 6 million tons from Argentina, but we are unlikely to get all that there this year, so I would say we have a gap of 1 million to 1.5 million tons that could come outside of Mercosur,” said to Forbes StoneX risk management consultant Fabio Lima, a wheat specialist.

Between August 2021 and July 2022, Brazil imported 5.5 million tons of wheat from Argentina, which accounts for much of the country’s imports, one of the largest global buyers, which has above 12 million tons per year.

He recalled that the Common External Tariff (TEC) of Mercosur is zeroed for imports of some products this year, including wheat, and that Brazil also has an annual quota of 750,000 tons exempt from the 10% TEC for purchases from outside the trade bloc, and should use it in 2023.

Lima said estimating when wheat from outside Mercosur might start arriving is difficult.

But he said he had received information – not immediately confirmed – of the recent arrival of a Russian cargo. He did not have details about the port of landing or volume.

With the deterioration of Argentina’s crop, whose production estimate was downgraded this week to 13.7 million tons, the lowest volume since 2015/16, according to the Rosario Stock Exchange, the certainty is that mills will pay more for a product from Mercosur or outside the bloc.

“As the Argentines are with a substantial portion sold, I think it’s very likely that we will have to look for wheat in alternative destinations, first in the United States, but also with potential in Canada and Russia,” said Carlos Cogo, of Cogo Agribusiness Intelligence.

“Now, importing means paying dearly, even considering the import tax exemption, exemption from any tariff… the ruler is very high. It’s expensive, which means a bullish scenario for the medium and long term.”

He cited quotations on the Chicago exchange sustained by the uncertainties of Ukrainian wheat exports through the Black Sea corridor, bad European harvests, and US climate concerns.

According to Cogo, Argentines have already sold almost 9 million tons of the 2022/23 crop, whose harvest begins to gain pace in the coming weeks. “In other words, there’s practically not much left for Argentina.”

With the lower projected supply, Argentine wheat has soared in the last month from US$320 per ton to US$380 per ton (base Up River port region), StoneX’s Lima pointed out.

EXPORTS FROM BRAZIL

The smaller crop in Argentina and higher prices should ensure some competitiveness for wheat from Brazil in the international market, said an industry insider, requesting anonymity to speak freely.

Although the country is a significant importer, it also exports non-negligible volumes, especially of grain with characteristics not suitable for bakery flour, which accounts for the most significant Brazilian demand.

Despite the weather problems in Paraná, Brazil should harvest a record crop of more than 9 million tons after producers expanded by 10% of the planted area with the help of reasonable prices, which favors exports.

“Brazil already has export commitments of 1 million tons,” said the source, evaluating that the market expects greater clarity on the quality of the Paraná crop, affected by rains in the harvest, to close more deals.

From January to September, the country exported a historic level of 2.5 million tons of grain.

With information from Forbes