North American wheat exporters are preparing for a tumble in
shipments to Brazil after the country reinstated a tariff on wheat bought in
from countries outside South America, amid hopes of a bumper domestic crop.
Brazil's foreign trade assembly, Camex, has reinstated a 10%
tariff on wheat imports from outside the Mercosur trading zone, ditching a concession
introduced last year after a poor domestic harvest, and a weak crop too in Argentina,
the default origin of Brazilian buy-ins.
The move will likely call time on a upswell in Brazilian imports
from North America, and in particular the US, which Brazil has turned to thanks
to the shortfalls in local supplies.
"The chance of Brazil importing any more US hard red winter
wheat is slim due to Brazil wheat harvest about to get underway and additional
wheat coming in from Argentina and Paraguay," US-based broker Fintec Group said.
Brazil bought 3.47m tonnes of US wheat in 2013 £ nearly half
total imports of 7.2m tonnes, according to Camex, and they have remained
strong so far in 2014 too.
According to the US Department of Agriculture, shipments for
the 2013-14 crop year, which finished at the end of May came in at some 4.2m tonnes, a nine-fold increase year on year.
And while US wheat exports to Brazil have slowed, they have
maintained a historically strong pace so far in 2014-15, with 626,800 tonnes
shipped as of August 7 and a further 356,500 tonnes on order.
Indeed, some Brazilian producers have long been pressing
Camex to reinstate tariffs, complaining over an extension issued in June,
despite the likelihood of an improved domestic harvest.
"The government defended its action citing the fact that it
was cheaper to import wheat from the US into north eastern Brazil than it was
to truck wheat from southern Brazil to north eastern Brazil," influential crop
scout Michael Cordonnier said.
Domestic food inflation is seen as a sensitive topic during
what is an election year.
In fact, the country is expecting a bumper harvest this
year, with the US Department of Agriculture forecasting a record 6.3m-tonne
crop, and Brazil's own Conab crop bureau pegging production at 7.50m tonnes.
The improvement reflects, on Conab estimates, both a 21%
jump in plantings and improved hopes for the yield, seen rising 12.4% to 2.81
tonnes per hectare, helped by strong rains which promoted crop establishment.
The strong crop prospects have depressed local prices in the
top growing state of Parana to some R$33.64 per 60 kilogramme sack, close to
the minimum price of $33.45 per sack guaranteed by the government.
"Wheat prices are expected to fall to below the minimum price
set by the government when the harvest gets into full swing," Dr Cordonnier
said, quoting estimates from Brazilian producers' group that the government
will need to subsidise the sale of 3m tonnes of wheat if it is to defend the
minimum price guarantee.
The strong harvest prospects have also raised talk of
Brazil, typically noted as a wheat importer, featuring on export markets,
filling some of the gap left by a poor-quality European harvest.
"There is even talk of Brazilian milling wheat finding its
way to Algeria from the end of September onwards," traders at one major European
commodities house said.
Meanwhile, with Brazil
having bought from the US in particular hard red winter wheat, the
potential slump in demand from Americas is being seen as one cause of a
surprise underperformance in Kansas City hard red winter wheat futures, besides raised production estimates .
Given quality problems of crops in Europe and, to a lesser
extent, Russia and now in the spring wheat crop in the US, many analysts have
expected hard red winter wheat futures to outperform.