Argentina loses export opportunity

Source:  GRAIN Central
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Severe drought is causing havoc in Argentina this year, drastically reducing potential winter crop production. The planting of this season’s crops is the latest in a decade, with well below-average rainfall and early frosts forcing farmers to delay their winter crop planting program.

Ten days ago, the Buenos Aires Grain Exchange (BAGE) reduced its wheat area forecast for the 2022-23 season from 6.2 million hectares (Mha) to 6.1MHa. This was the fifth such cut since the exchange made its original forecast of 6.6MHa back in May.

It cited persistent drought across most of Argentina’s major wheat and barley cropping regions as the main reason for the dramatic decline. Some of the country’s main grain-growing regions have not seen meaningful rain for more than two months.

The current wheat area forecast is 600,000ha shy of the 6.7MHa planted in the 2021-22 campaign, which yielded record production of 22.4Mt. The barley area forecast is unchanged at 1.3MHa, up slightly from 1.2MHa last season.

The decrease in winter-crop area mainly has been seen in the centre of the country’s agricultural area, where rains in mid-July were insufficient to reverse dry conditions, and the planting window is almost closed. A series of severe frosts in recent weeks is adding to the 2022-23 production issues.

However, patchy rain last week has replenished soil-moisture reserves in some regions, helping stabilise crop conditions and the production outlook. According to BAGE, rainfall over central and southern parts of Buenos Aires and La Pampa provinces reduced the country’s drought-affected wheat area by 9pc to 35pc. In the same week last year, 34pc of the wheat area was considered poor to dry, but the crop was planted on time and was well established when last year’s winter dry spell hit.

As of Thursday last week, most seeding equipment was back in the shed, with 98.8pc of the revised wheat area planted. This is up 2pc from a week earlier, and the final fields are expected to be seeded this week. The barley planting program advanced 6.9pc in the past two weeks, with 93.1pc of the forecast area completed.

Due to the late planting, dry conditions and cold winter, crop emergence has been slow, and plant development is well behind normal. Wheat tillering in some regions is running at around half the 5-year average for late July. The barley story is a little better, as most of the crop is in the province of Buenos Aires, where the soil-moisture profile has been slightly better than in central and northern regions.

BAGE has not released its first production forecast for the 2022-23 season, but its peer in Rosario recently cut its wheat production estimate to 17.7Mt. That is the market low at the moment, and demonstrates how drastically it believes the drought has hit the Argentine farmer this season.

The United States Department of Agriculture’s wheat production estimate currently stands at 19.5Mt off 6.2MHa. This is down from its June figure of 20Mt off 6.3MHa and could easily be revised lower in August with the ongoing dry and a lower planted area.

The USDA’s Foreign Agricultural Service (FAS) trimmed its production forecast to 18.5Mt last week, and its planted area is down to 6MHa. It cited a lower planted area, ongoing drought and lower use of fertiliser due to the dry conditions and extremely high cost as the main influencing factors. FAS is pegging barley production on par with last season at 5.3 Mt off a harvested area of 1.35MHa.

Farmer sales of old and new-crop wheat have slowed dramatically due to the worsening production outlook. Growers are holding on to old-crop stocks as a hedge against lower new-crop production and a rapidly weakening domestic currency.

Cumulative old-crop wheat sales stood at 21.04Mt as of July 20, including 17.65Mt sold for export. Total new-crop wheat sales had reached almost 5.11Mt by July 20, up from 4.34Mt at the same time last year, with virtually the entire volume destined for export channels.

Despite government pledges to seize export opportunities, Argentine farmers have faced a series of export deterrents this year. Foremost among them is a strict export quota that President Alberto Fernandez’s Peronist government reduced even further in March to shore up domestic supplies. There has also been talk of an increase in the wheat-export tax and a profit tax on exporters as the government battles to generate revenue to revive a stuttering economy.

USDA pencilled Argentina exports at 14Mt in the 2022-23 trade year beginning July 1. However, the FAS wound its number back to 12.85Mt, including wheat flour in its wheat equivalent, 4.75Mt lower than the 12 months ended June 30. The government has already issued export certificates for 8.85Mt of the 10Mt set export quota, or as the government creatively calls it, “the volume of equilibrium”.

The USDA and its FAS concur on barley exports for the 2022-23 trade year at 3.7Mt, unchanged from both the June forecast and the final 2021-22 number. There have not been many export certificates issued yet for new-crop barley. Malting barley exports are expected to be quite stable into other South American countries. Feed barley exports have grown significantly in recent years after China introduced an import tariff on Australian barley in 2020.

The ongoing drought and government protectionist policies have thwarted Argentina’s opportunity to increase wheat exports, just as global supply and demand tightened with the Russian invasion of Ukraine. If production continues to decline, there remains a distinct possibility that the government will further increase export restrictions to ensure domestic supply and keep prices in check. Even if that doesn’t happen, Argentina’s wheat export forays over the next 18 months, particularly into Asia, will be much less than those of the 2021-22 trade year.

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