ASUNCION/CHICAGO, Aug 3 (Reuters) - Weather damage to crops in Paraguay has robbed the international wheat market of more supplies of the high-quality grain needed to make bread and snatched an opportunity for the country to cultivate customers other than its massive neighbor, Brazil.
Frost has been so bad that Paraguay may lose as much as half the 430,000 hectares sown this year, leaving it with just enough crop to cover domestic demand, Jose Berea, president of Paraguay's chamber of exporters, known as Capeco, said this week.
Now Paraguay may even have to join the scramble for supplies of high-quality wheat that pushed benchmark prices on the Chicago Board of Trade to a two-year high in July, as drought has shriveled output in major exporters including the United States and Australia.
"It is too early to know if we will have good-quality wheat. There is a chance that we will need to make some specific imports to improve the quality," Berea said in an interview.
Paraguay was the world's 15th-biggest exporter of wheat in 2016/17. The small, landlocked country of 6.7 million has spent decades developing strains that would grow in its climate, which is hotter than most wheat-growing countries.
Its wheat is also of such high quality - above 12 percent protein - that Egypt, the world's biggest wheat importer, in November added Paraguay as the 14th country on its list of acceptable suppliers for state purchase tenders, although no shipments there have yet materialized.
Most of its wheat exports go to neighboring Brazil - a situation that Paraguay has been keen to change.
"It's a concern to depend on one market," said Santiago Bertoni, president of the Paraguayan Institute of Agrarian Technology. "We are working to diversify."
In the previous crop year, Chile and Vietnam also bought wheat from Paraguay, and exports have previously gone to Uruguay, the Middle East and Africa, according to Sonia Tomassone, the international trade adviser for Capeco.
This year, buyers are looking for high-protein wheat to replace lost volumes from exporters including the United States and Australia.
But Paraguay may miss out. Its farmers had already cut back on acreage because of low revenue last season, prompting the U.S. Agriculture Department to forecast output of 850,000 tonnes in 2017/18, down from 1.284 million tonnes the previous year.
That could now fall even more because of frost damage, Berea said. "I believe we will supply our local market, but there will be very little or nothing left for exports," he said.
HIGH STANDARDS, HARD WORK
Half a century ago, Paraguay relied on wheat imports. The country's evolution into an exporter took decades of work by wheat breeders and farmers, who struggled to find varieties that would yield well in its warm and humid climate.
"Paraguay had problems with a combination of high humidity and high temperature. Whatever (wheat) was there got smashed by the diseases," said Mohan Kohli, a wheat scientist who played a leading role in the country's effort to boost production.
Kohli worked for the International Maize and Wheat Improvement Center, known by its Spanish acronym, CIMMYT. He and his colleagues used wheat varieties from countries like India, Bangladesh and Sudan that could adapt to high temperatures.
"We started our own hybridization program here, which started combining the best of the best" in wheat genetics, Kohli, who retired from CIMMYT in 2005, said in a recent interview.
By 1986/87, Paraguay was self-sufficient in wheat and it began exporting a few years later. Exports peaked at 1.2 million tonnes in 2010/2011, USDA records show.
Tomassone said Paraguay needs to produce at least 3 million tons constantly to become a significant exporter.
"We need to have volume and stability in the international market, so people can know us and pay more for our wheat," she said.
(Additional reporting by Mariel Cristaldo in Asuncion; Editing by Matthew Lewis)