The war in Ukraine is expected to increase wheat production in Argentina and Brazil, the main wheat-producing countries in South America. Both countries will likely already increase wheat plantings this season, which begins in May 2022. The high price of wheat after a major shock in agricultural commodity markets caused by the Russian invasion of Ukraine is undoubtedly an incentive increase wheat plantings in Argentina and Brazil. , as well as in the United States (see daily farmdoc March 29, 2022). However, high input prices, particularly fertilizer prices, could partially offset the incentives to increase wheat plantings in South America.
Wheat: world markets and trade
Ukraine accounts for 10% of global wheat exports and Russia for 16% in the 2021/22 marketing year, which started in July. The majority of Ukrainian exports are shipped in the first months of the marketing year. The closure of Ukrainian ports limits additional exports. Meanwhile, India and Australia are expected to increase their exports to record highs as they both have record harvests and competitive prices (USDA, 2022). Global wheat export and import volumes in 2021 are shown for major wheat producing countries in Figure 1.
Argentina is South America’s leading wheat producer and exporter, accounting for around 7% of world exports. Brazil, on the other hand, is a major importer, mainly from Argentina (75%), followed by the United States (10%) and 15% from Paraguay, Russia, Uruguay and Canada. The ongoing conflict in Ukraine has caused wheat supply and food security issues for many large wheat importers who depend on supplies from the Black Sea. In this case, South American producers could increase supply from African countries. Argentina has already increased its exports to Africa. Australia exports wheat to Southeast Asia, while Canada and the United States serve the European market.
Expectations for planting in Argentina
Argentinian farmers are currently planning the planting of wheat. In recent years, wheat has been given a greater share in crop rotations in the pampas, the country’s most important agricultural region. The average area sown to wheat over the last three crop years is 10% higher than the average of the previous three seasons. Figure 2 shows that Argentine wheat production has been on an upward trend over the past decade. Both components of production, area planted and yield, have increased significantly.
Some experts estimate that wheat plantings in Argentina this crop year could exceed 6.75 million hectares planted with wheat in 2021. Argentina’s plantings of 6.75 million hectares, or 16.7 million ‘acres, accounted for 36% of the plantings done in the United States last year. It is also possible that the 2022 planting will be larger than the largest planting in the last 10 years (6.95 million hectares, in 2019). Given the availability of resources, an increase in wheat area is a possibility in Argentina, but it will depend on the relative weight of the different factors influencing farmers’ sowing decisions.
Argentina has three wheat planting zones: North, Center and South (Bolsa Comercio Rosario). The Center and South regions contribute more than 95% of production. The planting season in these regions begins in the second half of May. As a result, the first accurate data for Argentine wheat acreage will be available in May or June.
Sixty to 65% of the wheat produced in Argentina is exported. Wheat exports represent 5% of the total value of Argentine exports. Wheat exports, along with other agricultural exports, are essential to Argentina’s international trade balance. The wheat export market in Argentina is a private self-regulatory system, with the participation of exporters, mills and grain silos, under state supervision.
There is a 12% export tax on wheat, as well as a mechanism regulating export quotas and a trust fund. This recently created trust fund provides direct subsidies between private parties, the objective being to ensure that the prices of flour and noodles are offered under a price control program (Precios Cuidados, in Spanish) on the indoor market. The volume of wheat reached by this trust fund is about 4% of wheat production. The Argentine government recently announced an expansion of the wheat export quota with the “aim of giving farmers predictability for the next wheat planting and achieving a new production record in the 2022 harvest”.
High wheat prices are undoubtedly an incentive to plant wheat in Argentina, along with the recent announcement of increased export quotas and water availability in much of the planting region of corn. However, high input prices, especially fertilizer prices, and high prices for substitute crops, such as barley, could partially offset the incentives to increase the area planted to wheat.
Largest area in three decades in Brazil
Brazil produces 50% of the wheat consumed on its domestic market. In 2021, Brazil planted 2.74 million hectares and harvested 7.7 million tons of grain. In the same year, exports represented 2.1 million tons and imports reached 7 million tons, of which more than 70% came from Argentina. Meanwhile, Brazilian wheat consumption exceeded 12.5 million tons, according to the National Supply Company (Conab).
The area of land planted with wheat in Brazil has remained stable in recent years despite the dependence on wheat imports. From 2013 to 2020, for example, the area only increased by 6% (see Figure 3). However, in 2021, due to the value of the dollar against the Brazilian real, the wheat area increased to 7.8 million tonnes, above the average for the decade. Limited by the internal market and climatic problems, farmers had little incentive to sow more wheat in recent years. Figure 3 also shows Brazilian yields over the past decade, with slight variations due to adverse weather conditions in several crop years.
Wheat producers are looking for market opportunities due to the expectation of lower global supply and changes in the term structure of futures prices following the conflict between Ukraine and Russia. According to forecasts by Safras & Mercado, a consulting company in Brazil, the area planted should increase by around 30% this season, which starts in May. The company says Brazil is expected to grow 3.6 million hectares of wheat, the largest area in 36 years. If the weather is favorable and average yields reach three tons per hectare, Brazilian production will approach 10 million tons, according to Safras & Mercado. Cogo Intelligence in Agribusiness, another consultancy in Brazil, forecasts a 20% increase in wheat planted area compared to 2021.
The increase in plantings will take place mainly in the southern states of Parana and Rio Grande do Sul, which account for 87% of national production. Additionally, there is room to expand acreage in Brazil’s new agricultural frontiers, such as the Midwest and Northeast. The Brazilian Agricultural Research Corporation (Embrapa) is developing wheat seeds adapted to the Brazilian tropical climate. Some states already have good yields, while in others Embrapa is still making adjustments to find the best planting time and avoid rains at harvest.
There are some barriers to growing wheat area in Brazil, such as the cost of producing fertilizer, as Brazil imports about 85% of its fertilizer (see daily farmdoc March 17, 2022). Wheat competes with corn in parts of Brazil, and although the production costs of the two crops are similar, corn yields are higher than wheat. If the current water shortage continues, many growers may choose to grow corn later rather than wheat now. The expansion of the wheat area still depends on the supply of specific seeds. In addition, weather conditions in recent winter growing seasons have not been favorable for wheat growth.
Evolution of wheat prices
The prospect of high wheat prices has increased interest from Argentine and Brazilian wheat producers. Figure 4 shows the evolution of wheat prices at the port of Rosario in Argentina and in the state of Parana in Brazil since the 2017 agricultural campaign. The values indicated are the average crop prices for the 2017-2021 campaigns. For 2022, the prices shown are the average prices for March. Current price levels are 54% and 61% above the five-year average in Brazil and Argentina, respectively, and 16% and 32% above the price of last year’s crop in both countries. . Argentina futures price for 2022 is $283 per ton (Brazil uses Argentina futures prices as a reference price).
Despite the high prices, South American farmers are worried about agricultural input shortages and high fertilizer prices. Fertilizer prices have more than doubled since the previous planting season in 2021 and continue to climb. Thus, farmers need excellent yields to achieve good economic results.