Agri Commodities Prevew: Argentina Wheat Production To Scale Record Levels In Last 11 years

Argentine wheat production for marketing year (MY) 2018/19 is forecast at a record 20.0 million tons as farmers could expand planting area to 6.2 million hectares, the highest acreage in 11 years, depending on weather conditions. Experts agree that the drier La Nina pattern is fading, after the worst drought in 50 years, to a more normal moisture cycle. Favorable planting conditions in the eastern part of the country, due to recent rains could be offset by other regions, such as north and east Cordoba, southwest Buenos Aires and La Pampa, that still lack the moisture levels needed to plant wheat which could lower overall planting area if not rectified before June 2018. Expectations for strong future prices, based on tight regional supplies and strong global demand, are driving planting intentions for wheat in Argentina.

Wheat prices, in dollar terms, have increased about 20 percent for the coming crop while production costs have increased only 2-3 percent (in dollar terms). This will be a welcome change for farmers after a low-yielding summer crop and negative returns. Where possible, wheat crop followed by second crop soybean gives producers one of the most profitable planting combination as well as cash at the end of the year to help finance summer crop expenses. In addition, wheat planting area may also rise as last year flooding prevented some producers from planting wheat, the use of winter cover crop for weed control continues to expand and the n++short memoryn++ of farmers who had a good wheat crop last year. In general, most contacts indicate that producers will use high technology (quality seed, adequate crop protection and fertilization), except some producers who were negatively affected by the poor corn and soybean season that might limit inputs to save costs. Most local analysts and brokers expect an area expansion between 5-15 percent. Wheat production in MY 2017/18 is increased to 18.4 million tons because of an estimated larger harvested area, now at 5.7 million hectares.

Wheat consumption in MY 2018/19 is projected up at 5.7 million tons, excluding wheat milled for exports of flour, as a slow recovery in the domestic economy is forecast to strengthen demand. A significant increase in planted area will result in larger use of wheat for seed. Although still small, wheat for animal feed may also continue a growth trend as the local corn crop in MY 2017/18 could fall 8-10 million tons. The use of wheat for flour exports has been expanding in response to a government policy change that eliminated restrictions on wheat and flour exports. Argentina is currently exporting the wheat flour equivalent to 1.0 million tons of wheat.Argentine wheat exports for MY 2018/19 are forecast at a record high of 14.2 million tons as traders recover markets lost from 2012-15 under previous export restrictive measures. This trend is expected to continue in the future. Of total wheat exports over the past 12 months, Brazil accounted for 41 percent, Africa 25 percent, Southeast Asia 17 percent and other countries in South America 13 percent.

In MY 2018/19, Argentina is expected to ship more than 6 million tons of wheat (including flour) to neighboring Brazil at between 400-600,000 tons per month. Shipments are normally somewhat larger in March/April when Brazilian mills have consumed most of their domestic wheat. In the first months after harvest, Argentina exports feed wheat to South East Asian countries such as Indonesia, Thailand and Bangladesh, and milling wheat to African countries such as Algeria, Kenya and Nigeria.