June 26, 2009

A government deal with exporters that aims to guarantee higher prices for corn and wheat will not persuade farmers to plant more due to drought and widespread anger with farming policy, according to growers.

 

Argentine farmers are expected to sow a small amount of wheat. Fears of a small crop, which will lead to inflation and reduce state income from export taxes, prompted officials to sign the price agreements. 

 

Under the agreements, the government will free up frozen export quotas for grain exporters who agree to pay farmers more money for up to two million tonnes of wheat and one million tonnes of corn.

 

Wheat prices in Argentina have been poor due to a series of government export curbs, but have increased in the main grains market of Rosario as a result of the price deal. Yet farmers and industry analysts said the price deal will not be enough to boost production.

 

Planting can only be encouraged by a free, deregulated market and by slashing export taxes, said Lorena D'Angelo, a market analyst at Rosario grains exchange.

 

Meanwhile, leading farm group CRA stated that the deals increase the uncertainty in a business that is highly risky and farmers are harmed by the creation of a captive market.

 

Farmers in Argentina have protested for an extended period of time against the government's export policies, but the protests have died down ahead of an important mid-term selection on Sunday. But farmers remain angry over the export taxes and government intervention in the market and the conflict could flare up again if farmers feel their demands are not being met.

 

Partly because of anger over wheat policy, farmers are expected to plant just 2.9 million hectares of wheat for 2009-10, down from 4.55 million hectares a year ago, according to Buenos Aires Grains Exchange.

 

Drought in Argentina have nearly halved 2008-09 wheat production to 8.7 million tonnes, while corn production is seen dropping more than 40 percent to 12.5 million tonnes, said the exchange.

 

Meanwhile, farmers are planting more soy and the oilseed now occupies over half of the Argentina's cropland.

 

Corn and wheat also need more fertiliser and agrochemicals than soy, which further increases the oilseed's appeal in times of uncertainty over the weather and political climate.

 

Many farmers do not have the money to plant corn, and some plan to sow wheat if it rains but they will not complete their planting plans, said Guillermo Moulia, a grain trader.

 

The government said the price deals give farmers price guarantees, safeguard domestic supplies and promote exports, but it will still have the power to halt exports if domestic supplies are endangered.

 

Argentina consumes about six million tonnes of wheat annually, but there may be no wheat left for exports if the harvest turns out to be as bad as expected.