October 8, 2014

Wet Weather Increases Concerns for Wheat in Southern Brazil

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Persistent wet weather in Brazil's southernmost state of Rio Grande do Sul has wheat producers in the state worried that their 2014 wheat crop will be lower quality and lower yielding than what had been expected. Their concern is based on increased disease pressure especially gibberella and rice blast which are reported to be widespread in the state. The wheat crop in the state is at a sensitive phase in its development with 10% maturing and 55% filling grain.

These two fungal diseases are difficult to control especially at times when wheat prices are below the cost of production. Farmers are reluctant to apply additional fungicide applications in an attempt to control the diseases because if they did, they could end up losing even more money on their wheat production. The extension service in the state has not yet adjusted its estimate for the wheat production in the state, but the head scientists at the agency has indicated that their estimates may be reduced if the wet weather persists. The next official crop estimate from Conab will be released on October 9th.

In addition to the prospect for disappointing yields and lower quality, the current low prices for wheat has added to the general gloom hanging over the crop. Current domestic prices in Rio Grande do Sul are below the cost of production.

Wheat producers in the state have asked for help and the state and federal governments have initiated series of programs designed to help wheat farmers in the state including: a R$ 250 million real program designed to help millers purchase domestically produced wheat, an offer to store 300,000 tons of wheat in state-owned facilities, continuing the reduction of the ICMS tax (sometimes called the circulation tax) from 8% to 2% for an additional 45 days, a R$ 200 million real program for the purchase of wheat by the federal government, and a scheduled Pepro auction later this month designed to subsidize the purchase of 100,000 tons of wheat. Even with all these programs, it remains doubtful that farmers in the state will be able to sell their wheat at a profit.

An additional problem is that the grain silos in the state still have 350,000 tons of wheat unsold from the last harvest and this wheat must be moved as soon as possible in order to make room for the new crop wheat. The problem with the left over wheat is that it is lower quality wheat that is primarily used for animal rations. The wheat could be exported, but it would have a hard time competing with the abundant supply of low priced corn soon to be available in the international marketplace.