Posted September 12, 2013
MANHATTAN Kan. - A temporary tariff change by one of the world’s leading wheat importers, further extended just this week, means significant hard red winter (HRW) sales for Kansas wheat farmers. After wheat supply shortages in the Southern Hemisphere caused a shift in trade policy, Brazil has purchased 86.3 million bushels (2.35 million metric tons (MMT)) of HRW wheat since February 2013, worth an estimated $700 million.
Brazil is South America’s largest wheat importing market, but typically only purchases about 400,000 MT per year from the U.S., instead relying on fellow Mercosur member Argentina for the bulk of its wheat imports. This year, however, both Brazil and Argentina’s wheat crops fell short. That supply situation, combined with concerns of inflation in Brazil, resulted in a market opportunity for Kansas wheat farmers.
On April 1, 2013, Brazil lifted a 10 percent common external tariff on wheat, including for the U.S., for a quota of 36.7 million bushels (1.0 MMT). Brazil’s government later extended the tariff-rate quota to 73.5 million bushels (2.0 MMT) through Sept. 6. Two days ago, on Sept. 9, Brazil again extended the quota another 14.7 million bushels (400,000 metric tons) through the end of November 2013, signaling even more opportunities for HRW sales.
Brazil’s revised tariff rate quota for this year is temporary, but it has provided for U.S. wheat producers with an opportunity to gain new market access. In just the first three months of the 2013/14 marketing year (June-May), Brazil has already purchased almost 70 million bushels (1.9 MMT) of HRW wheat. U.S. Wheat Associates (USW), the industry’s export trade association, is hopeful that Brazil may institute a permanent increase in the tariff rate quota, as a duty free period has been implemented twice in the last five years.
“We are working very hard to get new market access for U.S. wheat producers and get Brazil to live by their trade agreements,” said U.S. Wheat Associates Vice President of Policy, Shannon Schlecht. “For the Midwest, the tariff rate quota, or getting new market access into Brazil would create new demand for HRW wheat, would be good for HRW producers and would raise overall farm gate prices if you can keep everything else equal.”
Another market opportunity exists with Brazil’s prior trade agreements. The U.S. had about 50 percent market share in Brazil before the implementation of the Mercosur agreement in 1991, which gave duty free access to wheat from Argentina, Paraguay and Uruguay. During the 1994 Uruguay round, Brazil agreed to market access for wheat from non-Mercosur, WTO members for 27.6 million bushels (750,000 metric tons) per year, but never implemented the measure. This year’s action could lead to permanent market access and, as a result, increased market demand for Midwest wheat producers. It would also provide a consistent, competitive alternative for Brazil’s milling industry that would ultimately benefit Brazil’s consumers.
“Any time we can have more market access and reduce tariffs, it is a positive for U.S. farmers,” said Scott Van Allen, Kansas Wheat Commissioner from Clearwater, Kansas. “We always strive to deal on a level playing field. U.S. farmers can compete with just about anyone on a farmer to farmer basis but we can’t compete with foreign governments.”
The location of U.S. southern ports is important for wheat exports to Brazil. Several important flour mills operate northeast Brazil and its northeastern port areas are about the same distance away from southern U.S. ports as they are from Argentina’s southern ports. This leaves U.S. wheat at no disadvantage when it comes to shipping costs.
Additionally, Kansas wheat producers and USW have worked together to maintain a good relationship with the Brazilian wheat industry. A group of wheat buyers from Brazil visited Sean Ohlde’s farm near Palmer in April. The tour, sponsored by Bunge, allowed participants to assess the quality of the 2012 wheat crop and gain a better understanding of the Kansas wheat industry.
As the nation’s leading producers of HRW wheat, Kansas wheat farmers are benefiting significantly from Brazil’s recent tariff change. Consistent market demand form one of the world’s largest wheat importing countries would see even more U.S. wheat sales to Brazil if that temporary opportunity becomes permanent law.