(AgriMoney) – Brazilian officials flagged the boost to prospects for South American wheat production – and for pressure on prices – from La Nina, even as ideas grow that the weather pattern could harm corn and soybean output.
Conab, the official Brazilian crop bureau, raising by 400,000 tonnes to 6.29m tonnes its forecast for domestic wheat output in 2016-17, flagged the boost to output prospects from the La Nina pattern which is expected to set in later this year.
La Ninas bring a “climate proven favourable to wheat production” both in Brazil, a net importer of the grain, and in Argentina, a large exporter which typically supplies the bulk of it neighbour’s need for purchases.
Conab ditched expectations of a rise in Brazilian wheat imports in 2016-17, cutting its forecast by 100,000 tonnes to 5.30m tonnes, taking the figure below the 5.35m tonnes estimated for the newly-finished 2015-16.
Of that Argentina provided 64%, Paraguay 17.8% and Uruguay 9.1%, with the US taking an 8% market share and Canada 0.2%.
‘Lower prices’
The bureau forecast “ample” supplies of wheat within the Mercosur countries overall, given estimates that Argentina will produce some 14.5m tonnes, a gain of 3.2m tonnes year on year, and offer “good quality” grain.
That represents a surplus of 8.0m tonnes, meaning Argentina requires a “good export performance” to avoid a build-up in inventories.
Indeed, a boost in Mercosur supplies overall to 23.0m tonnes, ahead of consumption of 17.6m tonnes, “signals the possibility of lower prices” for wheat buyers, “reducing the high costs of the milling industry and encouraging [demand from] the final consumer”, Conab said.
Brazilian wheat prices have, unlike those in many exporting nations, proved buoyant this year, hitting R$918.56 a tonne last month, the highest in nearly three years, and taking gains for 2016 to 26%.
Wheat values have been buoyed by knock-on pressure from tight corn prices, which has prompted many livestock producers to turn even to high-grade milling wheat as an alternative feed.
El Nino setback
The boost to South American wheat output prospects from La Nina contrasted with the setback to the last harvest from “excessive” rains blamed on El Nino, and which harmed crops in Argentina and Uruguay as well as Brazil, Conab said.
The bureau’s upgraded estimate for this year’s crop, the harvesting of which will ramp up late in the calendar year, reflects expectations of a yield of 2.93 tonnes per hectare – a jump of 30% year on year.
Indeed, production is expected to rise despite a 12.5% drop in sowings, led by a decline in the main growing state of Parana, where growers have shown a “preference to plant second-crop corn due to the attractive price”.
The Parana harvest of second crop, or safrinha, corn typically does not end until May, meaning it can interfere with wheat sowings, which last from March until July.
‘Negative weather impacts’
Conab’s upbeat comments came even as other commentators flagged the risk to Brazilian corn and soybean production potential from the potential La Nina, which many believe now looks like arriving too late to affect the US harvest.
“With La Nina looming, it appears the potential negative weather impacts could shift to the South American growing season and 2017 northern hemisphere growing season,” said Terry Reilly at Chicago broker Futures International.
Influential analyst Michael Cordonnier flagged an INTL FCStone study which “concluded that a La Nina generally results in drier-than-normal weather in southern Brazil, with less defined impacts in central Brazil”.
While the dry weather would “actually be welcome news for wheat producers”, in favouring the harvest, for corn and soybean growers it would arrive at a time “when crops are planted and developing, Dr Cordonnier said.
“In Brazil, the impact could be greatest on the soybean and full-season corn crops,” with corn sowings starting next month, and soybean plantings in mid-September.
