Internal woes blunt Argentina’s wheat export clout amid tight global supplies

Early expectations that Argentina could capitalise on the interruption in wheat supplies from the Black Sea appear to be fading as a combination of weather, inflation and political uncertainty combine to thwart the country’s agriculture and export sector.

The 2022/23 winter wheat crop, currently being planted, is the first of Argentina’s main crops to be sown after the Russian invasion of Ukraine, which has compounded high global prices for agricultural commodities this year and driven them to new heights.

However, with farmers planting under the lingering impact of a second consecutive La Nina - and amid early fears that the country could experience an extremely rare third consecutive La Nina in the months ahead - dry conditions have slowed planting progress.

A total of just 30% of the area has been planted with wheat as of June 8, down 6.2 percentage points from the same levels of a year ago, according to the latest estimates from the Buenos Aires Grains Exchange (BAGE).

Initial estimates peg the wheat crop at 20.5 million mt for the 2022/23 season, down from the record high of 22.4 million mt in 2021/22, but the exchange has warned that planted area could be slashed further and any consequent hit to production potential likely to be exacerbated if dry conditions persist.

And, with high prices affecting key inputs like fertilizers, farmers are potentially even more reliant on getting the right weather at the right times.  

“This year there are going to be less hectares planted with wheat and less use in fertilizers this season,” Jeremias Battistoni, Market Analyst from AZ Group, told Agricensus.

Such are the worries about the upcoming season that farmers are said to be cutting their wheat area and migrating to barley as it is cheaper to grow.

Alongside that, some area has been lost as the dry conditions mean producers that have purchased intermediate to long cycle seeds won't be able to plant unless the rains come soon, the Rosario Grain Exchange (BCR) said.

“But wheat export dynamics are surging this year, with around 90% of the exportable quota filled already. However, only 30% of the crop has been planted… so there is a risk there,” Battistoni added.

Fertilizer usage in Argentina – key to obtain good yields – is estimated to fall 7% in 2022 according to Argentina's fertilizer association, mainly due to high fertilizer prices, political uncertainty and difficulties accessing US dollars in Argentina.

The lower fertilizer usage is expected to be impact wheat and corn more specifically, which have the highest percentage of fertiliser use on hectares when compared to other crops.  

“We have a historic opportunity to sell more commodities to the world due to the strong demand and high global prices… but we don’t do it,” an Argentine source said to Agricensus.

Interventionist measures have been a key theme for global agricultural markets this year as countries - often major exporters - try to secure domestic supply.

And the government of President Alberto Fernandez has imposed a series of protective measures to tackle ever-rising domestic inflation levels in the country, warning of increases in export taxes and potential additional measures to protect the domestic market, and bringing further uncertainty into the farming sector.

The measure that has greatest impact for the grains trade is the so-called “equilibrium volumes” imposed for the first time for wheat in December 2021, whereby an automatic ban on exports and other restrictions are triggered when a threshold volume determined by the Government are achieved. 

For wheat, the export quota for has been set at 10 million mt for 2022/23, some 4.5 million mt below the exports achieved in 2021/22, when the country hosted a record crop of 22.4 million mt.

“There is a lack of responsibility from the Argentine government, that instead of encouraging the sowing of wheat so that we reach 20 or 22 million mt, they have stopped exports at ten million tonnes”, Luis Miguel Etchevehere, from the Rural Society of Argentina (SRA), said at a global conference at the end of last week.

“The world should not expect Argentina to contribute significantly to export volumes this year,” an Argentina-based grain analyst told Agricensus.

Together, the weather, political uncertainty and ongoing concerns arouond potential increases in export taxes for key Argentine export products has led farmers to migrate to other crops that are less exposed to the political uncertainty of late.

“Many farmers have migrated away from wheat to plant barley instead, where at least the internal political issue does not affect them, as it also escapes some eventual export closure,” another Argentina-based grain source told Agricensus.

The barley area in 2022/23 is expected to expand by 8.3% on the year to 1.3 million ha according to BAGE, resulting in a provisional output of 5.4 million mt for 2022/23.

High global prices for wheat have led to revenues in the first six months of the marketing year to exceed $3.740 billion, a record high for the same period, according to BCR.

And while Brazil remains the main market for Argentine wheat, taking 2.6 million mt in the first half of 2021/22, an increase in shipments to Africa has been noted taking 5.9 million mt to the continent, according to BCR.