August 15, 2002

Brazil is searching global markets for wheat imports. Prices are skyrocketing in its traditional supplier Argentina, and that is creating an opportunity for the United States, Canada, and many non-traditional suppliers to increase sales to the market. Brazil has followed a self-sufficiency policy for wheat but with only limited success and at considerable cost.

However, says a USDA report, the government continues to focus on expanding production into non-traditional growing areas, and the total area planted to wheat is up, largely due to higher support prices. Nevertheless, production meets only about a third of the country's consumption needs.

Therefore, Brazil has been among the top three global wheat importers over the past decade. Argentina is the main supplier to this massive market because of an obvious freight advantage combined with a preferential tariff rate as a Mercosul member. In fact, it has supplied 95% of Brazil's import needs over the past three years with only small amounts shipped by the United States and Canada.

Typically, Argentine exports slow and prices increase from June to November as supplies tighten prior to harvest. However, this year Argentine prices have soared to unusually high levels reflecting tight old crop supplies and concerns over future supplies with the 2002-03 wheat crop forecast smaller than last year.

Planted area will likely be down as a result of the high cost of inputs, tight credit, and economic uncertainty. Exacerbating the problem is the fact that Argentine farmers are retaining wheat as a form of currency. Therefore, Brazilian millers, which need to import over the next few months before their local harvest, have been forced to look elsewhere for supplies.

Millers are requesting that the 11.5% common external tariff (CET) placed on non-Mercosul wheat be removed. Although the CET recently was removed in Uruguay, it is unlikely to occur in Brazil, given resistance from domestic producers.

The entire report can be found on the Internet at http://www.fas.usda.gov/grain/circular/2002/08-02/art_aug02.htm.