Thomas White Global Investing
Argentina
Argentina Stamp
June 1, 2009
A Postcard from the Americas
Argentina: Drought Affects World Wheat Markets

Argentina hopes for a better harvest soon

Argentina is the 13th largest producer of wheat in the world. The majority of this grain production takes place in the Wheat Belt in Buenos Aires, a province that produces 63% of the nation’s total wheat.

The man looked down discouragingly at the brown field, striated with the scars of a severe drought. As the sun beat down, there was no trace of a smile from the rain gods. This portrait of a despairing farmer has become quite a common scene in Argentina, a country whose fields are withering due to lack of rain. After the soy and corn crops have failed, farmers are now counting each centavo before buying the expensive but much needed fertilizers for the upcoming wheat crop. The shortfall in wheat production, down from 16 million tons last year to 8.5 million tons this year, is not only the result of a dearth of showers but is also due to a 22% smaller growing area compared to last year. But it’s not just Argentina, which is affected. As the world’s fifth largest wheat exporter, the crash in the Argentine pampas has left global wheat markets in turmoil.

Farmers are due to start planting their 2009-10 crop in a month but industry analysts expect them to sow less than 8.6 million acres and that would mean a harvest of no more than 6.3 million tons. This denotes a fall of around 30%, the lowest since 1902-03 when Argentina was known as the “bread basket of the world.” Apart from the drought, three years of government interference in wheat trading has brought on the decline. Farmers were prohibited from exporting and a tariff of 23% was imposed on exports. The drought coupled with these disastrous export policies is likely to reduce Argentina’s grain production by 35% this year. And so it seems, Argentina is poised to plant its smallest wheat crop in 100 years.

Argentina’s wheat woes have spread to the world markets as global wheat prices are climbing, especially in the U.S. Global wheat prices went up by 3.7% at one point and the decline in Argentine production will make prices of wheat as well as corn and soybeans in the U.S., shoot up astronomically. It is also likely that Argentina will slip down two rungs on the ladder to the seventh slot among wheat exporters, according the U.S. Department of Agriculture. Worst-case scenario, Argentina will cease exporting altogether if it is not blessed with enough rainfall in the next couple of months. This year, the country’s exportable surplus is at the lowest level in 21 years and that means losing its export market customers. Brazil is Argentina’s largest wheat customer, with 95% of its wheat import needs supplied by its neighbor. But now Brazil is already turning to Russia and Canada to fulfill its wheat import demands.

But the rain gods may still cooperate. Based on forecasts of rain, Argentina’s farmers should be able to plant more in the second half of 2009. And who knows, the Argentine farmer may just recover from the worst drought in 70 years, and fill the breadbasket for the world once again.

 

Postcards from Around the World

Morocco: Supermarkets Thrive Despite a Recession

Learn More 

Italy: The Gray Areas of an Aging Economy and Immigration

Learn More 

China: Zooming Ahead in the Car Market

Learn More 





Subscribe to get our global publications by email.



Use of this site signifies that you have read Terms & Conditions
© Thomas White International, Ltd. 2018