May 24, 2007

 

High prices may persuade farmers in Argentina to plant wheat

 

 

Reluctant Argentine farmers may be encouraged to sow wheat due to moist soils and the grain's high prices amid qualms of more government intervention in the market and the interest of other crops such as corn. 

 

The South American country is one of the world's top five wheat exporters but farmers are seen planting less wheat in 2007/2008, due partly of government anti-inflation policies such as local price caps and export curbs.

 

Argentine farmers started sowing wheat this month and the government estimates they will dedicate 5 percent less land to the grain, citing higher fertilizer costs and increased interest in other crops such as barley and rapeseed.

 

Global demand, nevertheless, has pushed up prices for Argentine wheat which could help reverse farmers' sights to plant more of the grain.

 

Forward prices for new-season Argentine wheat for delivery in January traded at between US$133 and US$136 per tonne in local ports on Tuesday, rising from about US$120 a month ago.

 

Spot prices have also soared by several dollars per tonne after being frozen at 370 pesos per tonne (US$119) for months due to the setting of maximum prices by government officials.

 

Adrian Seltzer, an analyst at the Granar grains brokerage said though these prices could entice farmers go back to wheat, any political decision are derailing from doing so.

 

The centre-left government of President Nestor Kirchner is battling inflation that clocked 9.8 percent last year and 12.3 percent in 2005. It has capped wheat prices in the local market and closed the wheat export registry in order to stem rising flour and bread prices as well as to safeguard domestic supplies, a move that has displeased farmers.

 

Higher prices for soybeans and corn have raised their appeal for Argentine farmers, especially as they are not closely linked to domestic food prices as wheat is.

 

The Buenos Aires Grain Exchange expects wheat area be  reduced by 7 percent, while the US Department of Agriculture sees a cut in production by 12.8 million tonnes from last season's 14 million tonnes.

 

The country's wheat area has shrunk while the number of hectares planted with soy has soared. In the 2001/02 campaign, farmers sowed 7.1 million hectares with wheat, but in 2006/07 they planted 5.5 million hectares.

 

Farmers could still decide to dedicate extra acres to the grain as this month is still early for 2007/2008 wheat sowing campaign, especially as weather conditions are ideal in the wheat-growing belt following heavy rains in the recent months.

 

Stella Carballo, a weather specialist at Argentina's National Institute of Agricultural Technology (INTA) said current good soil moisture conditions for sowing will make switching crops fast as long as there's enough seed.

 

She said levels of soil moisture at the start of the wheat campaign tend to be maintained through the cooler winter months, making current conditions crucial for the crop's early development.

 

The last two years' wheat crops have been hit by drought, and analysts predict the "better weather frame-of-mind" as well as the higher global prices would help counter fears of new government measures before they bring in the 2007/08 crop.