Current wheat harvest will bring changes in the supply and demand picture

In recent years, Brazil has used more imports than its own production to supply domestic wheat demand. However, the country has been reversing this trend and its domestic production has been gaining ground, according to a report from hEDGEpoint Global Markets. In imports, Argentina is by far the largest supplier, providing up to 87% of purchases abroad in 2022, with other South American neighbors such as Paraguay and Uruguay holding a smaller share.

"This flow seemed natural, given that Argentina used to produce a large surplus and Brazil, whose most arable area is in warmer climates, would have less potential to be a major wheat producer. However, improvements in Brazilian wheat productivity in recent years, accompanied by gains in area, more than doubled the country's production in the last decade, while a 'perfect storm' threatens to lead Argentina to the lowest harvest in recent years”, observes the company's Commodities analyst, David Silbiger .

Brazilian wheat farmers had a record production in the 21/22 cycle and suffered from the sharp rise in input prices, just like Argentine farmers. However, in Brazil, climate events were unable to break the upward trend seen in recent years, and a new production record is expected. “This extra production will likely go to global markets, filling the void left by the Black Sea and even Argentina, if the current prospects for small production are confirmed,” notes Silbiger.

The situation in Argentina

The Argentine harvest faced challenges even before planting began: imports of nitrogen fertilizers fell 29% in 2022 compared to 2021, while phosphate fertilizers fell 14%. Considering that Argentina imports 70% of the fertilizers it consumes, local players such as the Stock Exchange are estimating large cuts in application.

In addition to inputs, other factors caused problems at the beginning of this cycle, such as droughts, high fuel and technology prices and political issues, notably concerns about

in relation to price and export policies, leading to constant area reductions. Most of these problems have become constant, especially drought, with some agricultural regions (especially in the North) facing a lack of rainfall throughout the cycle.

While the Northern provinces faced this drought, in the South, farmers had to deal with excess rainfall, capable of delaying progress between plant development stages, in addition to frost. With the 2021/2022 harvest already practically all sold, the delay and low production levels of the 2022/2023 harvest lead to very high transition stocks in Argentina.

Global tightening should reach South America

The global squeeze on wheat balances is also expected to extend to South America, given that the biggest possibility for relief, the large crop in Brazil, tends to be sent to the Mediterranean and sub-Saharan Africa in large quantities, according to the report .

“Thus, the country would tend to end the cycle with low stocks despite its record harvest, keeping demand for foreign wheat at more stable levels, which in turn will also put pressure on the Argentine balance sheet”, indicates Silbiger.