Argentine wheat output, exports to set record highs in 2018-19

05.05.2018

The next Argentine wheat harvest, for which sowings will start this month, will hit a record high, providing rains return - enabling exports to hit an all-time top too, US officials said, seeing a recovery in corn output ahead too.

The US Department of Agriculture’s Buenos Aires bureau, in its first forecast for Argentine wheat output in 2018-19, forecast it rising by 1.6m tonnes year on year to a “historic high” of 20.0m tonnes.

The increase – which would allow exports to hit 14.2m tonnes, up 1.7m tonnes from 2017-18, and also a record high – reflects expectations of an increase in sowings, encouraged by economic incentives for growers, some of whom are nursing losses after drought hits to summer crops such as corn and soybeans.

Wheat has also regained favour after the ditching by the government of Mauricio Macri of export curbs imposed by the previous Kirchner regime.

‘Welcome change’

“Expectations for strong future prices, based on tight regional supplies and strong global demand, are driving planting intentions for wheat in Argentina,” the bureau said.
 
“Wheat prices, in dollar terms, have increased about 20% for the coming crop while production costs have increased only 2-3% in dollar terms.

“This will be a welcome change for farmers after a low-yielding summer crop and negative returns.”

The bureau forecast Argentine wheat sowings rise by 500,000 hectares, or 8.8%, to an 11-year high of 6.20m hectares, although acknowledged a wide range of market expectations for the pace of increase, with estimates ranging from “5-15%”.

Weather factor

The Buenos Aires grains exchange last week issued one of the more downbeat acreage assessments, seeing an increase in seedings of 3.5%, to 5.90m hectares, and with that figure dependent on the return of rains to some regions which remain dry.

Without the rebuilding of soil moisture reserves, sowings “would be reduced to 5.40m hectares, 5% less” than last season, the exchange said, despite also noting the incentive provided by a 20% increase year on year in forward prices in Buenos Aires.

The USDA bureau, while saying that “favourable planting conditions in the eastern part of the country, due to recent rains” acknowledged this support “could be offset by other regions, such as north and east Cordoba, southwest Buenos Aires and La Pampa, that still lack the moisture levels needed to plant wheat”.

Such dynamics “could lower overall planting area if not rectified before June”.

‘Greatly improved conditions’

The International Grains Council, meanwhile, has forecast a rise of 4% in Argentine sowings for 2018-19, but expects a drop in production nonetheless, by 1.4m tonnes to 17.1m tonnes – although adding that this would be a historically high result.

“Heavy showers in Argentina’s core wheat growing areas greatly improved conditions ahead of sowing, but following prolonged drought, additional rains are required,” the council said.

“Given strong returns, area is projected to rise by around 4% year-on-year and production is pegged at a much-larger-than-average 17.1m tonnes.”

‘Strong option’

For corn, the USDA bureau forecast a rebound in Argentine output to 40.0m tonnes for 2018-19, which does not start until March next year, a recovery of 8.0m tonnes from this season’s drought-hit crop, and a result second only to the 41.0m tonnes reaped in 2016-17.

The bureau factored in a rise of 100,000 hectares in sowings to a record 5.2m hectares, as “strong domestic futures corn prices,” of $174 per tonne as of last month, “position corn, with stable production costs, as a strong option… to provide higher income and positive returns”.

Argentine corn exports in 2918-19 were forecast bouncing 4.5m tonnes to an all-time high of 27.0m tonnes.

Currency crisis

The report was written ahead of the collapse in the Argentine peso this week, which could alter Argentine farmers’ sowings decisions in favour of crops which can be easily stored, and which are indeed readily exported, meaning their domestic values are linked to dollar prices on world markets.

Argentine growers have a history of using globally traded crops, typically those such as soybeans denominated internationally in dollars, as a hedge against falls in the peso.

The peso on Thursday hit an all-time low of 22.30 to $1, down nearly 9% in two sessions, amid a currency exodus seen as sparked by foreign investors withdrawing cash ahead of the imposition of capital gains tax reforms.

Argentina’s central bank, in an effort to bolster the currency, on Thursday raised interest rates by the second time in less than a week, this time to 33.25%.

The benchmark rate had stood at 27.25% a week before.


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