November 8, 2013


Argentina's wheat crop forecast declines further



Despite it raised hopes for world cereals supplies, the UN's food agency, the Food and Agriculture Organisation (FAO), which last month kicked off a round of downgrades to estimates for Argentina's wheat crop, lowered its forecast further.


The FAO, which in October lowered its estimate for the Argentine wheat harvest to 9.5 million tonnes, setting an industry trend on Wednesday (Nov 6) downgraded the figure again, to 8.8 million tonnes.


The forecast was, again, below expectations from commentators except the Argentine farm ministry, which last month issued an 8.8 million-tonne forecast only to withdraw it, saying it was based on "partial" information.


While there is broad agreement that the estimate from the USDA, whose data set world benchmarks, of 12.0 million tonnes is too large, many forecasts have been centred around 10 million-10.5 million tonnes.


Louis Dreyfus on Wednesday (Nov 6) forecast the crop at 9.5 million-10.0 million tonnes, citing dryness in northern areas, where yields from the early harvest have been coming in at a weak 0.8 tonnes per hectare, according to the Buenos Aires grains exchange, although the exchange expects a marked improvement further south.


The FAO highlighted "deteriorating crop conditions in Argentina", due to cold weather and prolonged dryness. This dryness "may have reduced yield potential in some areas, despite the arrival of beneficial rainfall later in the season".


The agency also highlighted that wheat prices in Argentina had bucked a world trend of showing on-year declines, lifted too by the hangover from a small harvest last year.


An extremely tight domestic supply situation has driven export prices, slightly higher than at the same time last year, to an averaged US$344/tonne in October.


The comments come amid a particular market focus on Argentine wheat prospects, in part because it is, like the Australian crop, being harvested, but also in an attempt to gauge what supplies may be left over from neighbouring Brazil, a structural importer.


The FAO also lowered its forecast for the Brazilian wheat crop, saying that "although plantings increased, crops were also affected by inclement weather during the season, in this case unseasonably cold temperatures and frosts in August".


However, these downgrades bucked a broader trend of improved production ideas, with the FAO raising its estimate for world wheat production in 2013-14 by 3.5 million tonnes to a record 708.5 million tonnes.


This reflected a number of small upgrades, to now-harvested crops in the likes of the EU and Ukraine, plus a high of 4.0 million tonnes, to 29.2 million tonnes, in the estimate for Canadian production.


The organisation pegged world wheat stocks at the close of 2013-14 at 166.7 million tonnes, up 4.4 million tonnes from its estimate late month.


The stocks-to-use ratio, a key pricing metric was pegged at 23.6%, up from 22.5% at the end of last season, and signalling more comfortable supplies.


Indeed, the FAO said that food commodity markets overall were "becoming more balanced and less price volatile than in recent years, thanks to improved supplies and a recovery in global inventories of cereals".


The world food import bill for 2013 will fall by 3% to US$1,150 billion, led by declines in costs of grains, sugar and vegetable oils, but with dairy, meat and fish values "remaining firm".