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Brazil cuts wheat harvest again, and warns of fresh setbacks

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Brazil, again, lowered again its forecast for its wheat harvest, citing damage from weather setbacks ranging from drought to heavy rains – but failed to increase its import forecast, citing strong mill inventories.


Conab, the official Brazilian crop bureau, reduced by further 313,000 tonnes, to a five-year low of 4.57m tonnes, its forecast for its ongoing 2017-18 wheat harvest.


The downgrade took to 32% the drop expected in production from last year’s record high, and indeed left the crop less than 200,000 tonnes from setting a decade low.


And it reflected growing pessimism over yields, now seen averaging 2.49 tonnes per hectare, particularly in Parana and Rio Grande do Sul, the top two growing states.


‘Quality concerns’


The estimate for the Parana harvest was trimmed by 45,000 tonnes to 2.25m tonnes, taking it more than 1m tonnes below last year’s crop, a decline that Conab attributed to yield damage “caused by drought and frost”, besides a drop in sowings.


The bureau restated ideas of frost damage to crops during the sensitive flowering period, and “the drought of more than 60 days, between mid-June and August, that affected most of the areas undergoing vegetative growth”.


And it cautioned of a fresh weather threat too, from heavy rainfall, “which raises concern about the quality of kernels in crops still to be harvested”.


Moisture tends to encourage sprouting among crops yet to be harvested.


‘A series of problems’


The estimate for the Rio Grande do Sul harvest took the biggest downgrade, of 260,000 tonnes, lowering it to 1.54m tonnes, down nearly 1m tonnes year on year.


Storms and heavy rainfall last month “brought a series of problems to crops, especially in regions where they were more advanced, ready to be harvested”, Conab said.


While crops ahead of the rainfall had come in a yield of more than 2.0 tonnes per hectare, with specific weights above 78 kilogrammes per hectolitre, results reported after the downpours averaged about 1.5 tonnes per hectare, with specific weights of 70-74 kilogrammes per hectolitre.


The decline in a key baking specification “significantly” cut milling quality, Conab said, adding that degraded crop was “destined mostly for animal feeding”.


‘Mills remain well supplied’


The bureau flagged a further threat to wheat in the north east of Rio Grande do Sul, where crops are further behind in their development, but face an “increased incidence of fungal disease” thanks to high moisture levels.


Furthermore, “late frosts have occurred recently” that may have damage to wheat in flower.


Nonetheless, despite the production setbacks Conab stuck by an estimate for Brazilian wheat imports in 2017-18 of 7.0m tonnes, on a July-to-June basis, citing large stocks left over from last year.


“Brazilian mills remain well supplied,” the bureau said, echoing comments last week from research institute Cepea which said that mills had “good inventories”, a factor which had depressed volumes of crop traded, and indeed is seen as weighing on local values.


Wheat in Rio Grande do Sul was worth R$567.87 a tonne on Wednesday, according to Cepea, down 1.1% month on month, with dollar values, closely watched as a signal of the appeal of imports, down 4.1% month on month at $174.25 a tonne.


Brazil’s wheat imports in September were, at 415,600 tonnes, down 33% year on year, Conab said.


‘Negative for North American wheat futures’


The comments come at a time of international market scrutiny over Brazilian wheat imports, after the farm ministry last month floated plans for allowing in, tariff free, 750,000 tonnes of the grain from outside South America’s Mercosur trade bloc.


However, reports on Wednesday said that the idea had been scotched, with Brazil said to have decided to maintain the tariff, so favouring imports from Mercosur partner Argentina.


“This is seen as negative for North American wheat futures,” said Terry Reilly at broker Futures International, with Canadian and US wheat exporters likely beneficiaries of any move by Brazil to encourage imports from beyond South America.


In September, Argentine wheat accounted for 88% of Brazil’s imports, with the US on 7.2%, and Paraguay providing 3.6%.

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