July 18, 2013

 

Argentina halts wheat exports due to shortage
 

 

Faced with a shortage of wheat, Argentina has stopped exports and prompted the government to adopt price controls ahead of mid-term elections, amid reduced global supplies due to poor harvest last year in Russia, Australia and the US.

 

Export limits in the South American country, which were applied to ensure ample domestic food supplies, backfired this year as the government approved too much wheat for export based on optimistic early season crop estimates. Now very little remains to be milled into flour for bread. Argentina's wheat crunch hits at a delicate time for the global market.

 

Crop damage in China, the world's top grower, may force it to import its largest volumes in two decades. Egypt, the world's top wheat importer, is running out of imported reserves, which could exacerbate political turmoil in a country seen as key to Middle East stability.

 

Argentina's overestimation of its exportable wheat supply has meanwhile sent local bread prices soaring, fuelling one of the world's highest inflation rates as voters get ready to go to the polls for congressional elections in October.

 

In addition, Argentina's next harvest will be delayed because dry weather reduced early 2013 plantings by more than half. Only 220,000 hectares (544,000 acres) were planted with wheat this year in the northern provinces of Salta, Jujuy, Chaco and Formosa, less than half the 530,000 hectares planted in those areas in 2012.

 

These provinces, while not included in Argentina's main wheat belt in southern Buenos Aires province, are usually the first to be harvested in early November.

 

"This is a big problem because it's only July and supplies are already running thin," said Leandro Pierbattisti, an analyst with the country's grains warehousing industry chamber. "The usual early harvest in November won't be there this year."

 

Argentina is the world's no. eight wheat supplier and most of its harvest comes in December. Brazil, usually Argentina's biggest market, has been forced to buy more wheat from countries in the Northern Hemisphere this year. The top five wheat exporters are the US, the EU, Australia, Canada and Russia.

 

Another factor that has reduced Argentina's wheat supply, is farmers are shifting toward soy and other crops to skirt the wheat export curbs that they say hurt profits and make crop planning impossible. The resulting shortage has pushed the price of wheat for domestic consumption in Argentina to US$406/tonne from US$219 in January and US$175 in July 2012.

 

By comparison, US soft red winter wheat is being offered for August and September shipment from the US Gulf of Mexico at US$275/tonne.

 

The Argentine price rally started with reports in early of the year of bad weather that hobbled what was already expected to be a weak harvest due to historically small planted acreage.

 

Argentina has reacted with new regulations, including a law enacted early this month forcing wheat and flour producers to halt any export of reserve stocks and prioritise supplying the local market.

 

The government negotiated with bread makers to fix bread prices at ARS10 (US$1.84) per kilogramme, as opposed to the current market price of ARS18 (US$3.31). Some bakers and supermarkets have agreed to offer bread at the lower price only up to 10 a.m. every day, raising the price to ARS18 (US$3.31) later in the day.

 

Official data show bread prices are rising much faster than other consumer prices. But the government's options for fighting food price inflation are limited as the October vote nears.

 

"Technically it would be possible for Argentina to import wheat from Uruguay. But from a political point of view it would be nearly impossible because it would be a recognition of the government's own bad policies," Pierbattisti said.