U.S. Wheat Exports Seen Expanding Into Brazil

PORTO ALEGRE, Brazil -- As a result of the election of Alberto Fernandez in Argentina, Brazil's president Jair Bolsonaro has taken actions that favor U.S. ag products over Argentinian products.

Fernandez's running mate is former president Cristina Kirchner, who had a very protectionist administration until 2015.

Recently, Bolsonaro allowed the entrance of 750,000 tons of U.S. wheat with zero tariffs. Argentina is the top supplier of wheat into Brazil with over 7 million metric tons with unlimited quotas without tariffs because it belongs to the Mercosur free trade bloc.

Traditionally, Brazil's Northeastern ports have been the top wheat importers, and Argentina wheat prices into those ports are still more competitive than U.S. wheat, nowadays. If the difference is calculated in all Northeastern ports and the port of Santos, the top consumer port in Brazil with significant wheat imports, Argentinean wheat is between $150 and $300 per ton less than imported U.S. wheat.

"Price still favors a lot of the Argentinean wheat," says Luiz Pacheco, owner of consultancy Trigo & Farinhas (Wheat & Flours), based in Curitiba, Parana.

On the other hand, in the long-term there is another factor that could favor wheat from U.S. sources in Brazil. The new administration in Argentina previously had increased export taxes on the grain, making the country less competitive and without sufficient supply to its neighbor. The highest amount of U.S. wheat imports into Brazil was in 2013, when 3.4 million metric tons made up Brazil's total wheat imports of 7.2 mmt.

Mike Zuzolo, Global Commodity Analytics, based in Indiana, agrees that there is good opportunity for U.S. wheat exports to Brazil.

"I do think that there is a good chance HRW wheat is getting competitive to South American wheat. For instance, HRW futures has the smallest premium to corn futures price since the 2012 corn drought (around 20¢ at the end of August, and it has climbed back to 50¢ with the recent rally). My sense with Argentina is that the days of strong exports of grains are ending, and farmers will hold supplies. Plus, the government will want to hold supplies to contain inflation," says Zuzolo.

"Brazil is a quality-focused wheat market and its flour millers recognize that U.S. wheat can help them better meet their customers' needs," said U.S. Wheat Associates President Vince Peterson in a press release. "Opening the TRQ (tariff rate quote) will give those millers more consistent access to our wheat classes while still having the option to source from other countries. That is how the market should work, and we welcome this opportunity."