June 1, 2009

Argentina exporters buy 680,000 tonnes wheat under government accord

Argentine grain exporters have already bought 680,000 tonnes of 2008-09 wheat at full market price under an agreement with the government reached earlier this month to purchase 1 million tonnes, the grain exporter centre CEC said in a press release Friday (May 29).

The buying pace has been double than agreed, "showing the sector's will to fully comply with its commitment," CEC said.

On May 4, President Cristina Fernandez announced a deal under which exporters agreed to buy 1 million tonnes of old crop wheat at full price, which is the theoretical Free-Alongside-Ship price minus the 23 percent export tax. Exporters will then have to sell that wheat back to local millers at market price. In exchange, the exporters will be guaranteed 1 million tonnes of 2009-10 wheat available for export.

Local prices jumped over 20 percent following the agreement, with exporters back in the long-dormant wheat market. The plan is designed to stimulate more wheat planting in the face of signs that 2009-10 production will be down sharply.

Farmers complain that continued government intervention in wheat markets have depressed prices and spurred a shift away from the crop. The government tightly controls exports to ensure domestic supply and keep down local food prices.

In addition, with planting just starting, conditions remain poor. Dry weather and tight credit are seen causing a sharp decline in area.

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.

Climate models predict a dry fall and winter, with temperatures above average.

Very little new crop wheat is likely to be available for export from the 2009-10 crop, as the government will only authorize exports once about 7 million tonnes are set aside for domestic consumption.