Brazil's wheat production is reduced, and the government may abolish wheat import tariffs.

Market analysts have speculated that Brazil may lift tariffs on wheat imports from outside the Mercosur region. Heavy rains in brazil's main wheat-producing region have caused severe damage to wheat crops.

A poor wheat harvest in Brazil's main wheat-producing state of Parana, yielding only 2.8 million tons, was 20 percent lower than earlier estimates, prompting agricultural groups to lobby Brazil's Agriculture Ministry to lift import tariffs on wheat.

Brazil currently levies a tariff of 10 per cent on wheat imports from SADC countries.

Although Brazil usually imports wheat from Argentina to meet domestic demand, the persistent drought in Argentina's wheat-growing regions has led to a sharp decline in Argentine wheat supplies as farmers shift to more profitable soybean crops.

Argentina's wheat production this year is expected to be 7.75 million tons, according to the Buenos Aires Grain Exchange. This is well below the five-year average of 14.8 million tons. Domestic wheat demand is about 6.5 million tons, which means that export wheat supply is only 1.25 million tons.

Analysts said Brazil's imports of wheat from countries outside the Southern Common Market could surge to 2 - 3 million tons, providing a good opportunity for North American producers. Brazilian traders are likely to import wheat from the United States and Canada, analysts said, given Argentina's sharp wheat production decline and Paraguay's similar bad weather.

According to the USDA, Brazil's wheat supply-demand gap for 2009/10 is estimated at around 7 million tons, compared with 4.7 million tons the previous year.