Brazilian officials ditched expectations of a tumble in wheat imports to a multi-year low after a surprisingly strong finish to 2016 for buy-ins, encouraged by a recovery in the real and state purchases of domestic supplies.
Conab - which a month ago slashed its forecast for Brazil's wheat imports in 2016-17 [on an August-to-July basis] to 5.10m tonnes, the lowest since at least the mid-1990s – on Tuesday revised its forecast sharply upwards, to 5.95m tonnes.
That would represent a rise of more than 440,000 tonnes year on year, and indeed mark the highest imports in three years by Brazil which, while an exporter of the likes of coffee, sugar and soybeans, is a structural purchaser of wheat, largely of higher quality milling varieties.
The revision came despite a small upgrade, of 30,000 tonnes to a record 6.73m tonnes, in Conab's estimate for the newly-finished domestic harvest.
Instead, Conab said its higher import forecast reflected unexpectedly strong wheat volumes brought in late last year, helping drive total purchases for calendar 2016 to 6.87m tonnes, a jump of 33% year on year.
"It is worth noting the volume of wheat imported in December of 713,700 tonnes, against 464,400 tonnes in the same month of the previous year," Conab said.
The bureau highlighted that this had come at "the time when the government intervened" in the domestic market through programmes which include a so-called PGPM scheme aimed at offering a minimum price set at R$38.65 per 60 kilogramme bag, or R$644.17 per tonne, in the southern wheat belt.
One of the aims of Brazil's wheat subsidy regime is to facilitate movement of wheat from major growing states, such as Parana and Rio Grande do Sul, in the south to demand centres further north.
Although wheat values did fall below the government's minimum level - averaging some R$622 per tonne in December in the southern, main producing state Parana, according to data from research institute Cepea - that price, equivalent to more than $185 per tonne, topped some offers from exporting countries.
Signally, Argentina, Brazil's default origin for wheat, offered the grain to Egypt as low as $173.00 a tonne excluding freight just before Christmas.
The wheat landed in December in Brazilian ports - in many cases, nearer to demand centres than Parana - cost an average of $185.37 per tonne, according to the country's commerce ministry.
Conab flagged that Brazil had imported 1.67m tonnes of Argentine wheat in the August-to-December period, along with 1.0m tonnes of US supplies.
And it highlighted that Argentina, which as a fellow member of Mercosur exports wheat to Brazil duty free, remained a key source of the grain.
"The supply of wheat in Mercosur will be broad, with production in Argentina expected to grow to 14.4m tonnes, supplying the market with good quality wheat," Conab said.
"With this, Argentina will have a surplus of 8m tonnes, requiring the continuity of a good export performance, as has already been observed recently."
Conab foresaw potential for some of Brazil's strong wheat supplies to end up in livestock rations, saying that a "portion of" the surplus, with lower specification, may replace corn in feed.
However, it also hiked by nearly 900,000 tonnes, to 2.07m tonnes, its forecast for Brazilian wheat inventories at the close of 2016-17, including potential growth in state stockpiles.
The government was in talks over buying "part of this surplus production, to rebuild public stocks, which are practically non-existent", the bureau said.