May 8, 2009

Argentina has extended the amount of time allowed for wheat exporters to actually ship wheat after receiving an export permit from three months to one year, under a new programme in which the exporters agreed to buy one million tonnes of wheat at a higher price fixed by the government.

 

President Cristina Fernandez announced the agreement this week, in a move designed to stimulate more wheat planting in the face of signs that 2009-10 production will be down sharply.

 

Under the plan, exporters agreed to purchase one million tonnes of old crop wheat at full price, which is the theoretical FAS price minus the 23 percent export tax.

 

One exporter followed through with the deal Thursday (May 7), buying spot wheat at 553 Argentine pesos (US$150) per tonne, compared with the ARS480 paid on Tuesday (May 5), the last time the cereal was traded at the Rosario Grain Exchange.

 

Exporters will be able to take up to a year to actually make shipments of wheat bought under the plan if the export taxes are paid upfront, the agricultural trade office, or Oncca, said in a press release.

 

However, conditions for Argentina's wheat planting remain poor, with dry weather and tight credit leading to expectations of greatly reduced wheat area this season.

 

Argentina's 2009-10 wheat planting is expected to fall 18.6 percent on the year to 3.7 million hectares, the lowest amount since planting records have been kept in the country, according to the Buenos Aires Cereals Exchange.

 

While continued dryness is the main reason for the drop, farmers are also facing high financing costs and the economic strain caused by losses to the 2008-09 soy and corn crops due to drought.

 

In addition, climate models predict a dry fall and winter, with temperatures above average.

 

It's unlikely that any more wheat from the 2008-09 crop over that already cleared for export will be freed up for shipment and little or no wheat is likely to be left over for export from the 2009-10 crop.

 

"Hopefully there won't be a drop in wheat production again, and we're expecting the early forecasts for wheat area soon, but it's very dependent on the drought," Oncca director, Emilio Eyras, said in a recent interview.

 

During the 2008-09 season, Argentina's wheat production plunged to 8.3 million tonnes, the lowest output in 27 years, as farmers cut back on planted area and a brutal drought battered the crop.

 

If the grim forecasts for 2009-10 production hold, there is likely to be little available for export over the seven million tonnes expected to be set aside for domestic use.

 

"We will only authorise wheat exports if a surplus over domestic demand is confirmed," Eyras said.