December 16, 2013

 

Brazil's wheat import from the US continues

 

 

Buoyed by the steadily rising of wheat prices over the last few months, increased purchases from Brazil could provide more upside for US wheat prices. 

 

On an annual basis, Brazil consumes roughly 10 million tonnes of wheat, but the country is able to grow only 4.2 million tonnes because of some destroyed crops in the winter. In addition, Argentina (Brazil's traditional partner of the Mercosur) has the lowest wheat output in 100 years, due to drought. Argentina is only able to export more than 2.5 million tonnes due to bad weather and government limitations on the international trade of grains. In 2013, the US is expected to sell 3.0 million tonnes of wheat to Brazil. Last year, the US exported just 32,000 tonnes to the South American country.

 

A tax exemption that started in April has benefited the US and other countries outside of the Mercosur. It offers wheat to Brazil without a 10% import tax. So far, however, the US has been the only country with the quality of grain approved by Brazilian authorities and local importers, who need mostly hard red winter wheat.

 

The trend of increased US wheat exports to Brazil is expected to remain, because the Mercosur countries have a stock of only six million tonnes, while Brazil would need to import seven million tonnes, according to a projection by Safras & Mercado, a consultancy based in Porto Alegre.

 

Brazilian market analyst Luiz Pacheco, a consultant from Curitiba, Paraná, believes that the scarcity tends to be even bigger and that the US is the best commercial offer.

 

"As long as there is a shortage of production, Brazil will be buying from the US. It is the best commercial option for Brazil," Pacheco says.

 

Brazil has extended, through December, the exemption for wheat imported outside of the Mercosur. The current import quota is 2.7 million tonnes. Mills located in the north eastern part of the country, the main entrance for US wheat, have already lobbied for more US wheat.

 

Tyler Jameson, assistant director of policy at the US Wheat Associates, believes the trade of grain from the US to Brazil has been a "success," and it might continue. "As long as the crops are bad down there [in South America], Brazil will continue to buy US wheat," Jameson says.

 

The Mercosur bloc is expected to produce 18.5 million tonnes of wheat this year. The forecast before the winter frosts in the region were for about 21.5 million tonnes.

 

Paraguay also had significant losses in the bloc.