November 2, 2007
Opening of Argentina's wheat exports invite skepticism
Argentina is set to restart its wheat exports, which were halted in March to guarantee supplies for the domestic market.
Although traders welcome the move as a step to take to ease the extremely tight global grain markets, their joy could be short-lived.
This is because the country is also expected to increase by up to 10 percentage points an already hefty 20 percent tariff on grain exports.
Argentina's 20 percent tariffs on wheat and corn and 27.5 percent tax on soy is expected to increase soon after it allowed exports.
The Sociedad Rural, one of Argentina's main farmers' groups, says export tariffs raised US$4.15 billion in the 2006-07 season, a rise of 71 percent on the previous year.
The higher tariffs would negate the effects of starting exports.
Instead of helping to loosen the situation, it would further add to upward price pressure on the grain market, analysts said.
Wheat production in major producers such as the EU and Australia are down, with extreme drought halving production in the latter.
The expected wheat shortage has caused CBOT wheat prices to hit a record high of US$9.61 a bushel in October. However, prices have since cooled down, as planting intentions for wheat for next year rose.
Argentina was until recently the world's sixth-largest wheat exporter, exporting about 7 million tonnes of wheat yearly.
Argentina also closed corn exports last year but allowed exports of 3 million tonnes this year.
The unpredictable nature of Argentinean exports would only serve up more volatility in the global market when it opens its market, not when it is closed, analysts said.
