WASHINGTON, D.C., U.S. — The weak Brazilian currency and high inflation, fueled by an uncertain political atmosphere, will have a large impact on all grain producers in Brazil, the U.S. Department of Agriculture’s (USDA) Foreign Agricultural Service (FAS) said in a March 30 report.

Farmers are getting higher prices to export corn, which is increasing the price of domestic corn. Because the exchange rate is making corn exports more lucrative, 2016-17 wheat area is forecast to decrease slightly to 2.2 million hectares as a result of some producers switching to more second crop “safrinha” corn in the south of Brazil. 2016-17 corn production is forecast at 86 million tonnes, which – if realized – would be a record.

Brazil’s 2016-17 corn consumption is estimated at 58 million tonnes, a 1% increase from the previous year based on the growing poultry and pork sectors. According to the Brazilian Feed Industry (Sindirações), the feed industry is only expected to grow about 2% in 2016, due to a more competitive export market for corn and soybeans. Because exports have been so lucrative due to the exchange rate, domestic corn prices for feed have increased over 50% in the last year.

2015-16 corn exports are expected to continue their strong pace from the previous year’s record exports. This is largely a function of the exchange rate as opposed to higher commodity prices. Farmers are getting more Brazilian currency for their corn, which is incentivizing exports, but also driving up the prices of domestic corn. The government intervened and released some government owned stocks to temporarily bring domestic prices back down.

Brazil’s 2016-17 wheat production is forecast to increase 7% from the previous year based on a return to normal weather. 2015-16 was lower due to severe rains in the state of Rio Grande do Sul. Production costs have soared due to a strong dollar and higher energy costs in 2015.

The Brazilian currency depreciated over 40% in 2015 against the U.S. dollar, which has caused inputs that are imported to be more expensive. In addition, inflation is over 10%, which is hitting consumers and producers for everyday goods and services.

2016-17 wheat imports are expected to decline 11% from the previous year to 5.3 million tonnes due to increased logistic costs and decreased consumption. Despite large shipments in 2014, the U.S. lost its commanding market share in 2015 as Argentina re-entered the market. It’s likely that Argentina will continue to dominate Brazilian wheat imports, as the new Argentine president eliminated wheat export restrictions, making Argentine wheat even more competitive in Brazil. Additionally, Mercosul wheat does not face the same 10% Common External Tariff (TEC) that North American wheat does. 2015-16 Exports are estimated at 6 million tonnes, lower than USDA official numbers, based on pace and decreasing consumption.

Rice producers have been hit by higher production costs including electricity, transport, and taxes, which is impacting their profit margins.

Brazil’s 2016-17 rice exports are expected to decrease to 800,000 tonnes due to potential competition from the U.S. in Cuba as trade restrictions between the two countries are eased. U.S. rice producers see a real market in Cuba and U.S. Agriculture Secretary Vilsack’s recent visits there could signal the opening of a strong market. In 2015, Cuba was the largest market for Brazilian rice, overtaking Venezuela from 2014. Interestingly, Brazil exported 23,000 tonnes of broken rice to the U.S. in February, as Brazilian prices were competitive with Southeast Asian exporters.

Imports for rice in 2016-17 are expected to drop slightly from the previous year to 600,000 tonnes, based on fewer exports. Brazil’s main rice suppliers are other Mercosul countries, Paraguay, Uruguay and Argentina.