South America Calling

Brazilian Demand for U.S. Wheat to Continue Weak Into 2017

Brazilian demand for U.S. wheat will remain weak through 2016 and into 2017, local millers said Thursday.

An expected rebound in output in Argentina, a good-looking crop in the south of the country and a well-supplied international market will limit Brazilian demand for wheat from the north, Marcelo Vosnika, chairman of the Brazilian Wheat Millers' Association (Abitrigo), told journalists in Sao Paulo.

Brazil imported 218,000 metric tons of U.S. wheat in the first seven months of 2016, putting it on course to import around the same volume as last year, when 451,000 mt was brought in.

Imports of around 500,000 mt are also expected for the 2016-17 commercial year (Sep-Aug), said Vosnika.

Brazil's is one of the world's biggest wheat importers and in the 2016-17 season will need to bring in approximately 5.3 million metric tons. But a dramatic jump in Argentine production from 10 mmt to around 14 mmt to 15 mmt this year following the scrapping of export tariffs and quotas means millers can rely on its neighbor for 90% of its wheat imports. Argentine wheat is shipped to Brazil tariff free under the Mercosur trade agreement. Another portion will come from fellow Mercosur members Uruguay and Paraguay.

Brazilian millers have been unhappy with Argentine wheat quality for a couple of years, leading to some talk that Brazil may lean more heavily on the U.S. for supplies in 2016-17. But, according to Abitrigo President Sergio Amaral, talks about quality have gone well and, assuming Argentina's crops develop well, there won't be any great need to compensate quality deficiencies from other destinations.

Despite the fact Brazilian wheat planted area fell this year, favorable winter weather in the southern-producing regions means output will likely rise 14% when the harvest begins in September and quality is expected to be good. That will potentially mean more domestic wheat in the top-consuming southeast of Brazil, which will cause more Argentine wheat to be sent to the northeast, a region that is closer to the U.S. and typically is the destination of most North American wheat imports.

Argentina will be keen to place wheat in Brazil due to the excess of Black Sea product that is pressuring other markets.

Back in 2014, Brazil imported approximately 2 mmt of U.S. wheat.

Questions for Alastair Stewart can be sent to Talk@dtn.com

(CZ)

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