South America Calling

Argentine Wheat Output Set to Bounce

The victory of Mauricio Macri in Argentina's presidential election would appear to mark a sea change in farm policy.

And no commodity will be affected more than wheat.

If the president-elect follows through on promises to lift quotas and export taxes on wheat, Argentina could quickly double shipments and reclaim its traditional spot among the world's top five exports.

It probably won't take to exporting beyond its traditional markets in South America, specifically Brazil, though, analysts say.

For the last eight years, President Cristina Fernandez has stimulated local milling and curbed exports through quotas and a 23% export tax in an attempt to hold down domestic inflation.

The policy acted as a disincentive to plant as quotas curbed liquidity -- Argentina traditionally exports well over half its wheat -- while the tax lowered prices.

As a result, wheat planted area has fallen dramatically.

Between 2008 and 2015, average Argentine wheat area was 10.2 million acres compared with an average of 15.1 million acres over the last century.

Area has largely migrated to single crop soybeans.

With an end to intervention, all this would change quickly.

Farmers would once again plant more wheat, not necessarily to the massive detriment of soy as it is possible to double crop the grains in many parts of Argentina. CREA, a local farm group, estimates another 3 million acres could be double cropped.

Argentina is pegged to produce around 9.5 to 10.5 million metric tons from the current harvest, which is around 15% complete. With domestic consumption at around 5 to 6 mmt, that will leave 4 to 5 mmt for exports.

However, Argentina has produced over 18 mmt in the past and exports could quickly jump. By 2018-19, exports could reach 11 mmt, said Pablo Adreani of the Agripac consultancy.

An increase in production would allow Argentina to reaffirm its dominance in the Brazilian market, The neighbor and partner in the Mercosur trade bloc traditionally supplies Brazil with 80% or 90% of imports, but in 2013 and 2014 supplied less than half because of limited availability.

It will also re-establish itself as an exporter to other countries in South America. But, unlike in soybeans, it probably won't be able to compete in Europe and Asia though, noted Enrique Erize of the Novatis grains brokerage.



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