Argentina Halts Wheat Exports As Bread Prices Double

Posted by Nogger - a legend in his own mind at 09:51 | Categorized as

27/06/13 -- The Argentina government have halted wheat exports as domestic supplies run low following a poor 2012/13 harvest.

Farmers cut plantings last year in protest to the government’s regular interference in the market, and now it would seem they are at it again.

The USDA’s suggestion that Argentina produced 11 MMT* of wheat last year is widely regarded as being pie in the sky, with 9 MMT thought likely to have been nearer the mark. (Interestingly, and for reasons I can’t really explain, the USDA seem to have a bit of a track record in being wildly optimistic versus local estimates with regards to Argentine wheat production in recent years).

With domestic consumption of around 6.0-6.2 MMT, and almost 3 MMT of Argentine wheat having already been shipped abroad in 2012/13, the problem is there for all to see.

Bread prices in Argentina are said to have doubled in the last month, according to a report by Associated Press yesterday.

Meanwhile spot wheat on the Buenos Aires Grain Exchange is commanding USD480/tonne, according to Reuters. That’s way above world prices.

Argentina may end up having to import wheat this season for the first time in 60 years, Oil World said recently.

So why don’t they just get on with it? One of the problems with importing wheat is that you need dollars to pay for it, and whilst the “official” exchange rate for the peso versus the US dollar is around 5.37, the “real” or black market exchange rate is some 50% higher at around 8.05 pesos.

Planting of the Argentine 2013/14 wheat crop meanwhile is about halfway through, and harvesting of that won’t begin until November. The government say that they are confident that various recently introduced incentives will encourage a sharp rebound in plantings of as much as 40% this year, producing a crop of around 16 MMT. The Buenos Aires Grain Exchange are more guarded, forecasting an increase in plantings of only around 8%, without giving a production estimate.

Whilst you could view all this as mildly supportive for the wheat market, the bottom line is probably that if Argentina don't ship it somebody else will, probably one of the many Eastern European/FSU sellers that are currently scrambling around and dropping their kecks looking for business.

*The USDA's forecast for Argentine wheat exports of 7.5 MMT in 2012/13 looks even more ludicrous.