June 10, 2010

 

 

A rebound in Argentina's wheat crop after a two-year drought will enable the South American nation to recoup sales to Brazil, ousting US and Canadian grain at a time when global supplies approach an eight-year high.

 

A jump in production in the region's biggest wheat exporter will add to swelling worldwide inventories and "would certainly be negative" for prices, analysts said.

 

Rain from September to March restored moisture to parched fields, and fresh rain in May helped the sowing and germination of wheat.

 

The drought led the Mercosur regional trade bloc to grant Brazil a temporary reduction in import tariffs on non-member wheat. That enabled the US and Canada to sell the country 1.7 million tonnes over the past two years, according to Brazil's government. Such imports will cease as supplies recover in neighbouring countries, said Lawrence Pih, president of Brazilian miller Moinho Pacifico Industria e Comercio.

 

"We expect to source all our needs in the Mercosur region next year," added Pih. The four-nation trade group is made up of Brazil, Argentina, Paraguay and Uruguay.

 

For US and Canadian farmers, the loss of Latin America's biggest wheat importer as a market comes as global supplies climb to the highest since 2002, according to the USDA.

 

Argentina's 2010/2011 harvest, which is now being sown, may yield about 12 million tonnes. The government may double its wheat export target to six million tonnes from three million, according to the Agriculture Ministry.

 

In the latest marketing year, which runs from March to February, exports fell to 2.62 million tonnes from 4.4 million.

 

Wheat harvests in Paraguay and Uruguay, which also suffered from drought, will rise this year, enabling Brazil to cover its annual import needs of about six million tonnes from Mercosur partners, said Pih.

 

US Wheat Associates, an organisation that represents farmers, is pushing the government to negotiate free trade accords with countries such as Colombia and Panama in order to boost competitiveness overseas. 

 

Brazil lifted a 10% import tariff on two million tonnes of non-Mercosur wheat in 2008, and then restored it for 2009 and 2010. Brazil's government and farmers are pressing for the rate to be increased to 35% to encourage domestic production.

 

Brazil's efforts, including minimum price guarantees, to boost domestic output failed last year when adverse weather damaged crops, Pih said. The government is left with about one million tonnes of wheat that isn't of good enough quality to be sold to millers, he added.

 

Without import tariffs, US farmers would be able to sell wheat to Brazil though shipping costs are higher than imports from neighbouring countries, according to US Wheat.