Argentine rains hit wheat prospects - but bode well for corn

04.08.2017

Argentine wheat sowings, hampered by excessive rains, will not rise as fast as had been thought, hurting hopes for a bumper harvest - although high soil moisture levels have lifted expectations for corn seedings.

The US Department of Agriculture's Buenos Aires bureau pegged Argentine near-completed wheat seedings at 5.20m hectares for 2017-18 – a rise of 300,000 hectares year on year, but below an official USDA estimate of 5.60m hectares.

The downgrade reflects ideas that many fields, "primarily located in the south west and south east of Buenos Aires province, may not be planted due to excess rain which affected soils and/or roads", the bureau said.

The revision follows a cut last month by 100,000 hectares, to 5.4m hectares, in the Buenos Aires grains exchange's forecast for Argentina's wheat plantings, a downgrade also reflecting wet weather.

Exports to fall

The bureau added that, thanks to the weaker sowings, Argentine wheat production looked like coming in at 16.65m tonnes – below the 17.5m tonnes that the USDA has pegged the figure at, and removing the potential of a crop ranking as the country's second highest ever.

The record of 18.6m tonnes was recorded in 2007-08.

The estimate for exports was in turn, at 10.5m tonnes, 1.0m tonnes below the USDA's forecast, and a 1.0m-tonne fall year on year too.

However, the revisions put the bureau's forecasts closer those of the International Grains Council, which last week held at 16.5m tonnes and 10.3m tonnes its estimate for Argentina's 2017-18 wheat output and exports respectively.

"While wet conditions hampered fieldwork in parts of Buenos Aires and La Pampa provinces, attractive prices are expected to encourage an increase in area," the council said.

Corn optimism

The bureau was more upbeat, however, on prospects for Argentina's 2017-18 corn sowings, which start next month, pegging them also at 5.20m hectares.

That is 300,000 hectares above the official forecast from the USDA, which sees plantings holding steady year on year.

The bureau said that "most contacts believe that planted area will increase between 5-10% from last year, as corn, in many areas of the country is the best economic alternative," to soybeans, of which years of successive seeding have presented agronomic setbacks.

"Many producers, who most are in a good financial situation, will prefer to continue to recover their area with corn and go back to a crop rotation scheme which is more sustainable," even if returns prospects from growing soybeans appear far larger.

The bureau also flagged "very high water tables", after successive years of good rains, "which in most cases provides a very good start for corn production".

The extra seedings will see Argentina growers harvest 40.5m tonnes of corn, in line with the 2016-17 record, and 500,000 tonnes ahead of the official USDA forecast, with the bureau pegging exports at an all-time high of 29.5m tonnes.

Bunge's 'pressured margins'

The comments come at a time when results from Bunge, showing a dip in Brazilian milling margins, have cast a shadow over ideas of demand for wheat in the country, which takes roughly half of Argentina's exports of the grain.

Soren Schroder said that Bunge's setbacks in Brazilian flour reflected a double whammy of consumption setbacks caused by economic hardship - saying that "a 13% unemployment rate is not small" – and a strong quality domestic harvest last year.

"A high-quality domestic crop this past year… allowed many of the smaller and very fragmented mills in the southern part of Brazil to compete and market flour into the central part of Brazil, and even to the north," Mr Schroder said.

"That pressured margins in our business, which is mostly based on imported wheat."

However, this dynamic "will change as we run out of old crop wheat stocks towards the end of this year," he added, saying that Bunge's Brazilian milling operations would return to "more normal run rates of earnings" in 2018.


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