Rains provoke worries over Argentine wheat quality too

27.10.2016

Rains have raised the potential for Argentina joining the long list of countries to report a large wheat harvest of compromised quality, and giving further support to premiums for higher specification supplies.

The US Department of Agriculture bureau in Buenos Aires in a report published overnight flagged the strong potential for the Argentine wheat harvest, restating an estimate of production reaching a five-year high of 14.4m tonnes.

The high hopes, equivalent to a rise of 3.1m tonnes year on year, reflect the boost to sowings from improved prospects for farmer returns, after the government of Mauricio Macri, elected late last year, scrapped export duties on wheat, as well as corn.

And prospects for quality have looked good too, helped by extra investment by farmers in their crop.

"Producers planted a larger proportion than normal of higher quality wheat varieties demanded by local mills and have used better technology (especially the level of fertilization) in their crops," the bureau said.

"Yields are expected to be somewhat higher than in the past crop seasons, but most importantly, the quality of grain is anticipated to be significantly better."

'Quality concerns'

However, persistent rains have raised concerns that specifications may fall short of hopes, with precipitation late in the growing cycle tending to encourage sprouting in kernels, and quality loss, rather than offering the yield boost seen earlier in development.

"Recent rain in Argentina has raised quality concerns," said Terry Reilly at Chicago broker Futures International, adding that the country will "see rainfall over the next week into early November".

At Minneapolis-based Benson Quinn Commodities, Brian Henry said that "southern Brazil and northern areas of Argentina remain wet.

"The quality of the crop in the saturated areas is being called into question."

'Low global supplies'

For international wheat markets, the realisation of concerns could add to the premiums for higher specification wheat supported by quality setbacks in many other major producing countries too, including France, the EU's top producer and exporter, Russia and Canada.

The worries have been reflected, for instance, in a rise to $1.10 a bushel in the premium of futures in high protein spring wheat, as traded in Minneapolis, over low protein Chicago soft red winter wheat, December basis, from a level of less than $0.30 a bushel touched in early June.

In Australia, where persistent wetness in the east and frost in the west has also provoked quality fears as harvest ramps up, Rabobank said that "the price spread between milling and feed-grade wheat has widened through the last month".

The gap "will remain important to keep an eye on as harvest progresses and the impacts [of weather setbacks] are realised, in addition to low global supplies of quality wheat".

Export impact

A setback in Argentina could also provoke a reassessment of its expected comeback in exports to neighbouring Brazil, a structural wheat importer, which has seen its own crop quality threatened by rain again, for a third successive season.

The USDA bureau forecast Argentine shipments to Brazil rising to 3m-4m tonnes in 2016-17, potentially reaching twice levels reached in 2013 and 2014 lows, which were depressed by export curbs.

US exports of hard red winter wheat stand likely to benefit should Argentine supplies of quality wheat indeed falls short of meeting Brazilian demand.
    


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