Argentina wheat area may decrease by half next season

Argentine government intervention in markets and export limits will likely cause wheat planting next season to plunge by half from the historic low set in 2009-10.

 

The worst that could happen is that next year wheat planting falls again and production is not enough to meet domestic demand, the Rosario Grain Exchange said.

 

The government tightly restricts wheat and corn shipments, only approving exports once domestic supply is assured.

 

The limits, combined with two years of drought, spurred a shift to soy and has seen Argentina's role in world wheat trade plunge. Farmers planted the smallest acreage of wheat in more than 100 years this season.

 

As the financial attractiveness of wheat has slumped, farmers have turned to soy, which faces no restrictions on export volumes, although there is a hefty 35% tax on overseas shipments. As much as 60% of all farmland was planted with the oilseed in 2009-2010, more than double the figure 10 years ago.

 

Argentina was the world's third-largest supplier of wheat in the 2006-2007 harvest year, with total exports of 12 million tonnes. That is expected to slip to just 3 million tonnes this during 2009-10, with Argentina falling to seventh place, according to the USDA.

 

Wheat has not been traded at the Rosario Grain Exchange since December 1, as farmers hold out for higher prices agreed to with the government, but millers and exporters balk at paying the higher amount.

 

Trade has remained frozen despite a deal announced by the government last week that was designed to kick-start the market.

 

The latest deal involves an expansion of the wheat export quota from this season by 1 million tonnes, a commitment from wheat millers to buy 1.5 million tonnes, and to put in place the mechanism for refunding export taxes to small and medium-scale wheat and corn growers.

 

The plan is aimed at spurring buyers to pay a theoretical Free-Alongside-Ship (FAS) price, which is the international price minus export taxes and the cost of getting the grain to port. But farmers have yet to see those prices as the tight export restrictions have allowed local buyers to press down offers. The government's theoretical FAS price on Monday (Jan 25) was ARS633.00 (US$167) a tonne.

 

So far this year, the government has agreed to allow 4.6 million tonnes of wheat exports, but much of that is likely holdover from the 2008-09 crop.

 

Output is estimated at 7.5 million tonnes by the Agriculture Ministry, with about 11 million tonnes of total supply expected to be available this year when inventories held over from last season are included, the Agriculture Minister said last week. With domestic demand at around 6.5 million tonnes, that would leave 4.5 million tonnes for export this year.