Could be something new;
You didn’t use to have any option or storage associated with importing a heightmap into a landscape.
You would just open the labscape level, enter sculpt, and click the import button - if you didn’t provide a properly formatted file you’d get junk on screen.
If you are importing the file into the engine - then using it somehow (at runtime? Hope not, it won’t work unless you cook the engine components in your build) - then idk, but you should probably make sure you also turn off any compression on the file. Grayscale is already compressed (and usually should go down to 255 colors instead of the 65535 found in a 16bit format.
So it could cause terracing - depening on what it is meant by “grayscale” in whatever engine definition there currently is…