Global Perspective | Argentina’s wheat game in good form

Argentina’s wheat game in good form


Grains
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Like Argentina’s rugby side, the Argentinian wheat harvest is also in good form this season.

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LIKE Argentina’s rugby side, the Argentinian wheat harvest is also in good form this season.  

The latest US Department of Agriculture world agriculture supply and demand report report maintains its forecast that Argentina will produce 19.5 million tonnes of wheat in 2018/19. 

Meanwhile other sector watchers maintain there is still upside to that figure, despite recent drier conditions and some frost, so that Argentina may in fact push towards – although is not expected to exceed – a 20 million tonne wheat harvest. 

Even production of 19.5 million tonnes will be one million tonnes above the previous record, up five per cent year on year and an impressive 34 per cent above the country’s five-year wheat production average.

At this rate – and this stage of the season – there is no need to wait for the full-time siren to award the “southern hemisphere wheat production cup” to Argentina this year.  

While Argentina is set to start harvesting a record crop next month, Australia – the southern hemisphere’s other notable global wheat exporter – is facing its smallest crop in 10 years.  

As published in Rabobank’s annual production report earlier this week, we forecast the total Australian winter crop to fall to close to 29 million tonnes, down 24 per cent from last year, with wheat production to be 

just 16.8 million tonnes, down 21 per cent year on year and 32 per cent below our five-year average production.   

For Argentina – after a drier season and then devastating season-closing rains further downgraded the country’s soybean and corn harvests earlier this year – the stage was set for the planting of more wheat hectares, with full opening soil moisture profiles signaling good yields. 

With rain throughout planting (sometimes verging on too much) and during the growing season, yields are forecast to be up two per cent on last year, and seven per cent on the five-year average.  

Higher yields plus an increase in planted hectares of three per cent year on year (and a massive 26 per cent over the five year average) put Argentina in an enviable position.

Increased production and an exportable surplus, of course, only becomes a win if profitable sales are achieved into global markets.  

Argentina here too is on a winning streak in that its currency has depreciated, making its wheat cheaper for importers.  

Depreciation of the Argentinian peso in 2015, when it was unpegged from the US dollar was seen as a significant development for competitiveness.  

However that fall, which was sustained, does not compare to subsequent declines, including a 50 per cent reduction this calendar year to date as efforts to manage the country’s debt levels flounder.  

The Argentinian peso now sits in historically-low territory at just US2.7 cents.

Of course, market share in South-East Asia is a more important “cup” that the Australian wheat industry would like to keep in its trophy cabinet.  

Already in strong competition with Black Sea region wheat over recent years, the sheer lack of new Australian crop supply (and high basis that can be expected to hold into 2019) means that wheat export competition steps up a level.    

The turbulent economic policy settings that sit behind the Argentinian wheat sector, including their on-again-off-again export taxes for example, do not support it stealing Australia’s market share in South-East Asia consistently.  

However winning a half and a game here and there on the wheat export rugby paddock, does mean Australia’s defensive position requires more work into the future.  

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