Wheat: understand the situation of the 2024-25 harvest in Brazil and Argentina

Hedgepoint Global Markets experts explain the main prospects for the wheat harvest in the two South American countries

20.05.2024 | 16:28 (UTC -3)
Luciana Minami
Photo: Disclosure
Photo: Disclosure

The 2024/25 wheat harvest in Brazil and Argentina is extremely important for both countries. After all, they have an important commercial relationship: Argentines are the main suppliers of wheat to Brazilians. 

There are countless variables that can affect the wheat market in these two nations. Climate challenges and Russia's own supply affect farmers' prices and decision-making around the world.

Hedgepoint Global Markets experts, Sol Arcidiacono, Head of Grains Latam, Andrey Cirolini, Relationship Manager, and Alef Dias, Market Intelligence Analyst, explain the main prospects for the wheat harvest in Brazil and Argentina,

Russian production influences wheat harvest in Brazil and Argentina

To understand the wheat market scenario in Brazil and Argentina, it is necessary to understand the crop situation in Russia. Russia is the largest exporter of this commodity on the planet.

Conditions for the winter cycle in the Northern Hemisphere have been very positive in the last two months. The estimate is for a good volume exported, totaling around 50 million tons, with a large supply and an increase in the planted area. However, the climate in the region has been changing and there are concerns about soil moisture:

"It started to rain less in Russia, with periods of drought. In general, we still have indications of good inputs for the 24/25 cycle, but there could be a change in the coming weeks and months", explains Alef Dias.

In the European Union, there were heavy rains at the end of 2023 and beginning of 2024. The commercial dynamics of countries such as Romania and Bulgaria were compromised, as was a significant reduction in wheat planting in France.

Brazil: smaller planted area and climate risks

The climate catastrophe in Rio Grande do Sul left no price reference for Brazilian wheat. With regard to the new harvest, there is still time for planting to take place after weather and logistical conditions return to normal.

However, with the end of the El Niño phenomenon in Brazil and the likelihood of La Niña during the winter, production is heading towards a moment of transition. In this context, the following situation could occur:

"There is a risk of more drought during the period when the harvest is established. However, there is less chance of a lot of rain, especially at harvest time. That's what we saw last year in Rio Grande do Sul", explains Cirolini.

Another highlight is the reduction in the area planted with wheat in the country. The National Supply Company (Conab) projects an average drop of 4,7% in the sown area compared to the previous season. The drop is mainly due to Rio Grande do Sul and Paraná, which reduced the area by around 100 thousand hectares.

In 2023, producers faced a lot of rain during the harvest, with a loss of quantity and quality of wheat. With a global scenario of a lot of wheat supply, there was no compensation in prices, resulting in less competitiveness", says the Relationship Manager at Hedgepoint.

Rio Grande do Sul is currently experiencing its greatest climate tragedy in history. It will be essential to monitor the repercussions of recent events and how they will affect wheat production. "The normal planting period in the South is mid-June. Therefore, we hope that producers will not be strongly impacted", says Cirolini.

Alef Dias also highlights the importance of analyzing how floods will affect the planted area: "we will need to analyze how the climatic conditions in Rio Grande do Sul will affect the planted area. Initially, a smaller planted area was expected, but with better productivity, which generates compensation in total production", he explains.

Argentina: recovery of soil moisture brings good prospects

Argentina is the main wheat producer in South America. According to Sol Arcidiacono, the recovery of soil moisture and the reduction in fertilizer prices reinforce expectations of a good harvest:

"This is a great start. We also saw a drop in the price of urea, which is used to fertilize wheat. These two aspects are fundamental for calculating the producer's margin, which defines planting intentions", he says.

The late activation of El Niño caused abundant rains during March and April throughout the country's agricultural area. As a result, profile reserves are expected to recover dramatically.

Closer to the planting phase, also supported by the good recovery seen in international prices, Argentina expects to see some increase in area, closer to a record. The latest official number was revised to 6,20 M has (Bolsa de Cereales), from the preliminary idea of ​​5,9 M has, as market and climate conditions have favored farmers in their planting decision.

Argentine producers are preparing to start planting in June. Next, they are looking at moisture, global wheat prices, and input prices:

"Given the current scenario, we expect around 50% more recovery in Argentine production compared to the previous year, which was 12 million tons and this would boost export participation, with the need to seek additional destinations beyond Brazil", Arcidiacono said.

Furthermore, there is a chance that the area planted with corn will decrease due to the possible effects of La Niña, as they may be more intense in this crop. This is an incentive to increase wheat planting and soybean planting during the late spring/summer.

In this sense, the climate and economic profitability create a complex panorama for producers to decide whether they want to plant wheat.

What is the relationship between the Brazilian and Argentine wheat markets?

The evolution of the Brazilian wheat harvest influences Argentine farmers, as they may be at a competitive disadvantage if Brazilian production is substantially greater. Another factor is the growth in imports of Russian wheat to Brazil.

Since Argentina showed a significant drop in its 2023 wheat harvest, Russia has become the second main supplier of the commodity to Brazil, increasing its share.

If Brazil buys less Argentine wheat, Argentine producers could expand sales to countries such as Indonesia, Vietnam and the Philippines. In other words, they will be competing with Russia and other countries in the Black Sea region with historically lower prices:

"For example, in the last two years, Brazil had a record harvest. So, they compensated for the lower supply from Argentina", explains Hedgepoint's Head of Grains Latam.

LS Tractor February