February 1, 2005

 

 

Argentina's inexpensive wheat well received 

 

Argentina's inexpensive wheat continues to give the country's grain exporters a competitive edge, allowing them to ship more wheat to more markets, the Rosario Cereals Exchange said Monday.

 

So far this harvest, Argentina has already sold new wheat to at least 19 countries, up from just eight a year earlier, according to Agriculture Secretariat data.

 

"We are seeing that markets are open and very active because of the competitiveness of local prices," the exchange said in a report. "The FOB prices of Argentine wheat are oscillating between US$107 and US$105 per metric ton depending on the port, values that are very below those of the previous year, when prices were US$160 per ton."

 

On Friday, Argentine wheat had an FOB price of US$107 at northern ports, a higher price competitiveness compared with US$152.30 for U.S. Gulf of Mexico wheat.

 

In recent weeks, Argentina has been selling wheat to Asian nations for US$15-$20/ton less than similar quality U.S. wheat, according to the exchange. This has enabled Argentina to outdo sales from the U.S. and Australia even in their domestic markets.

 

Moreover, Argentine wheat is continuing to make headway in the North African market, an area normally dominated by European providers whose proximity lowers shipping costs and usually makes their wheat cheaper. But Argentina's recent success in exporting to North Africa has pressured the E.U. to subsidise its wheat exports, the exchange noted.

 

"European traders are saying they need a double-digit subsidy - of at least EUR11 per ton - to recover key North African markets," the exchange said. "European countries recently lost a lot of market share against Argentine grains, which have a significant price advantage. The FOB values of Argentine wheat are at least US$30 per ton less than those of European wheat, though this difference shrinks to US$15 when you add shipping costs to North Africa."

 

The reason for this discount is simple, says Federico Mircoli, a trader and analyst at the Buenos Aires-based brokerage Granos del Parana.

 

"The harvest here was much bigger than expected," Mircoli said. "There is a bigger supply and the exportable balance is much larger. The truth is that at these values we can compete for any destiny. We could even compete against U.S. soft wheat."

 

Argentina's exportable balance stands at around 10.5 million tons, Mircoli said.

 

Yet, increased production isn't the only reason why prices are competitive. Argentina's relatively weak peso has also given its products a comparative advantage, the exchange noted. Meanwhile, a comparatively strong euro has made it harder for European exporters to sell their goods.

 

Wheat, more than any other local crop, is sold heavily during the harvest. This has been particularly good for Argentina this year because the country's harvest, which is strongest December through January, has coincided with high seasonal demand from North Africa.

 

Argentine farmers normally sell their wheat stocks at this time of the year, the exchange noted. But if local prices begin to rise in the days and weeks ahead, farmers will sell at an even faster rate because many also plant corn and soybeans. Some farmers are holding off sales, hoping that prices might still rise.

 

"The producer who has wheat - and has also planted soybeans or corn - will need space and liquidity to prepare for the harvest of those crops," the exchange said.

 

The 2004-05 corn and soybean crops are almost entirely planted and will need to be collected beginning in February and March, respectively.

 

New sales

 

Last week Argentina sold 30,000 tons of wheat to Vietnam at US$178 per ton, including cost and freight, according to the exchange.

 

"This opens the door to more sales (to Southeast Asia) in the weeks ahead," the exchange said. "With this purchase, Vietnam joins Malaysia, Indonesia and Sri Lanka on the list of countries that have bought Argentine grains for the first time in over a year, attracted by the competitive prices."

 

Vietnam imports about 1 million tons annually and the Rosario exchange expects Argentina to begin accounting for a greater portion of this.

 

"Nobody else is currently offering wheat at these prices," the exchange said.

 

Mircoli agrees.

 

"Undoubtedly, we will be selling more at these prices," he said.

 

As for North Africa, Argentina has already sold 900,000 tons of 2004-05 wheat to Egypt. This is on top of 300,000 tons sold to Algeria, 200,000 tons to Kenya and 150,000 tons to Morocco, according to Agriculture Secretariat data.

 

Other new buyers include Bangladesh, Cuba, United Arab Emirates and Jordan.

 

"As long as prices don't go up too much, Argentina will continue to sell more wheat to non-traditional markets," Mircoli said. "I don't think prices will rise too much because of the size of the exportable balance."

 

Sales are way up from a year ago at this time, official data show.

 

By Friday, Argentina had sold 5.7 million tons of 2004-05 wheat, compared with just 3.08 million tons a year ago, according to the Secretariat.

 

Argentina is the world's fifth-largest wheat exporter, according to the U.S. Department of Agriculture.

 

In 2004 Argentina exported US$1.373 billion worth of wheat, up from US$940 million the previous year, according to Indec.