November 22, 2007

Brazil may continue to import more US wheat
 

Brazil imported 317,000 tonnes of US wheat in the last three months, and uncertainty with the Argentina crop leaves open the possibility of more US wheat exports to Brazil in the coming year, according to a US Department of Agriculture attache report posted on the Foreign Agricultural Services Web site.

Between August and October 2007, Brazil imported 317,000 tonnes of US wheat, valued at US$76.8 million. This is the largest amount of US wheat imported by Brazil since 2003 and the highest value since 2002.

Brazil, the world's largest wheat importer, normally imports more than 90 percent of its wheat from Argentina. Last year's wheat crop in Brazil was severely damaged by drought and frost, dropping total production over 50 percent from the previous year. To make matters worse, in March 2007, Argentina closed export registrations for wheat in an effort to control domestic inflation. However, Argentina reopened export registrations for wheat flour after a one week closure. This contributed to a reduction in Argentina's share of the Brazilian wheat market and an 80 percent increase in the amount of Argentine flour shipped to Brazil already in progress as a result of the difference between the export tax for grain (20 percent) and flour (10 percent), which was put in place in October 2006.

Post contacts believe that, in the coming year, Brazil will need to look outside Mercosul for wheat again. Estimates of US wheat imports range from 40,000 tonnes to 400,000 tonnes. It appears certain that this year will be another year of volatility and small mill closures in Brazil.

On November 13, the Brazilian wheat industry announced plans to file a legal challenge under Mercosul rules against the Argentine government to undo these differential export taxes. Also on November 13, the Argentine government finally reopened wheat export registrations. Unlike last year, however, when traders registered a sale and then had a year to ship (allowing them to switch destinations), the time period between export registration and shipment is now only 90 days. This is expected to slow down the pace of registrations and add uncertainty for the Brazilian wheat millers who can not be sure that Argentina won't decide to close registrations again. This could make the reliability of US wheat even more appealing.