Exchange holds forecast for Argentine wheat crop, despite rains

04.09.2017

Rains have left much of Argentina's wheat fields with excess moisture, but not enough to warrant crop writedowns, the Buenos Aires grains exchange said - as INTL FCStone flagged South America's growing reliance on the country.

The Buenos Aires grains exchange said that 34% of Argentina's newly-sown wheat crop was on land containing "excess moisture" thanks to rains which forecasters expect to return to parts of the wheat belt, including southern Santa Fe and north east Buenos Aires province, this weekend.

"A large part of the country… maintains a status of excess water," the exchange said, adding that his "continues to affect the growth and development of crops".

In parts of La Pampa and Buenos Aires province, the excess moisture was also hampering applications of nitrogen fertilizers and agrichemicals to tackle the fungal diseases often encouraged by wet conditions.

North vs south

However, the exchange stood nonetheless by an estimate for Argentine wheat area of 5.35m hectares, a rise of 250,000 hectares year on year.

While parts of Buenos Aires, Santa Fe and La Pampa had indeed lost crop potential to flooding over the slowing period, this had been accounted for in a downgrade that the exchange made earlier in the sowing window to its initial seedings estimate, of 5.50m hectares.

Indeed, the losses had been offset in part by improved expectations for northern growing areas, which had enjoyed "good weather conditions".

Argentina vs rest of Mercosur

The comments come amid a growing market focus on Argentina's crop fortunes, with Chicago broker Futures International, for example, earlier this week saying that "excessive rain across southern Argentina's wheat growing areas is becoming a growing issue.

"About 5.5m hectares of cropland [overall] has flooded - 21.7m hectares are affected."

And they followed a briefing from broker INTL FCStone highlighting the growing importance of Argentina for wheat supplies for the Mercosur trading bloc countries - that is Argentina, Brazil, Paraguay and Uruguay, but excluding Venezuela, which has been suspended.

Indeed, while Argentina's wheat acreage will increase for 2017-18, encouraged by the ditching of export levies and restrictions by the government of President Macri, plantings in Mercosur overall will drop for a third successive season, this time by 5% to 19.2m acres.

This will take below one-third the proportion of Mercosur wheat sowings outside Argentina, from historic levels of 40-50%.

In production terms, Mercosur wheat output it poised to decline by 60m bushels year on year to 887.4m bushels, INTL FCStone said.

Price prospects

With Mercosur, in Brazil, including one of the world's top wheat importers, that dynamic might be expected to place upward pressure on prices of Argentine supplies which, through the trade bloc, which gives advantageous terms to trade between members.

However, values in Argentina should come under a "great deal of pressure", like prices elsewhere from a bumper Black Sea harvest, said INTL FCStone analyst Joao Macedo.

"To compete for Asian and African markets, Argentinian product will have to compete with Russian wheat," Mr Macedo said.

Furthermore, the region has large stocks, of 144m bushels, left over from last season – 64% of which are estimated in Brazil, "which could limit Brazilian demand for imports in the upcoming cycle".

While there is potential for Argentine price values, should weather limited production, current expectations of 11m tonnes in exports imply a "subtle price increase" is on the cards.

'One weather challenge after another'

In fact, data from Brazil's Conab bureau show domestic wheat stocks closing 2016-17, on an August-to-July basis, at a multi-year high of 2.53m tonnes, tripling over the crop year, thanks to a strong harvest, in quantity terms.

However, the country still required strong imports, of 7.09m tonnes, in part to meet a quality shortfall.

Conab forecasts imports of 7.0m tonnes in 2017-18, reflecting expectations of a tumble in the harvest to a five-year low of 5.19m tonnes.

The estimate factors in expectations of a drop in sowings and yields - estimates echoed by a US Department of Agriculture report last week that said that Brazil's wheat crop "faces one weather challenge after another".

In Rio Grande do Sul, rains delaying sowings at the start of the planting window, in May-June, while frost in July brought it to a premature end, damaging crops in Parana too.

Then dryness since mid-June, making July the driest in 30 year in northern Parana, has also caused some crop losses.


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