North American Wheat Struggles Open Door for Argentina

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A shifting landscape

Argentina mainly produced corn and wheat until soybean demand emerged in the 1980s. Soybean acreage grew steadily through the 1990s and overtook wheat as Argentina’s most planted crop beginning in 1997/98, or 1998 according to the USDA. Córdoba and Santa Fe were the first provinces where wheat lost significant acreage to soybeans. In 1973, Santa Fe planted 2.2 million and 247,105 acres of wheat and soybeans, respectively. Over the next 30 years, wheat slipped to 2.1 acres million while soybeans skyrocketed to 8.2 million acres. Soybean acreage quintupled to 13.8 million acres in Córdoba between 1986 and 2016. Wheat took its biggest blow when Buenos Aires began planting more soybeans. Buenos Aires is Argentina’s top wheat producer, but its wheat area fell from 11 million acres in 1997 to 7.3 million acres in 2008.

Further suppressed by Kirchner’s policies, Buenos Aires wheat planting plunged to 3.1 million acres in 2013. The Kirchner administration unpredictably varied the quota annually, so farmers increasingly planted soybeans. Cultivators preferred to grow soybeans—even with a 35 percent export tariff—rather than to produce wheat and face unexpected export restrictions. Kirchner halted wheat exports altogether in late 2013 due to poor weather affecting yields. Bad weather coincided with the least wheat planting since 1970 and resulted in Argentina’s lowest wheat production since 1981.

Macri dropped the 23 percent wheat export tariff on his fifth day in office and removed wheat export quotas later that month. Wheat acreage subsequently rebounded to 15.7 million acres in 2017 and Argentina’s Ministry of Agriculture estimates 14.6 million acres sown for 2018. The provinces of Entre Ríos, Santiago del Estero, and Tucumán have all increased wheat production in recent years. The Ministry of Agriculture, Livestock, and Fisheries (MAGyP) data for the 2018 wheat crop will be available on Gro when released by the Argentine government and will report whether wheat plantings have continued to shift to other provinces.

Getting Brazil back

Argentina has seen modest population growth, and its gap between wheat production and consumption has widened significantly since the 1970s. Wheat production was 4.1 million tonnes greater than consumption in 1980. The gap expanded to 13.2 million tonnes in 2017, helped by a tiny 1.2 million tonne demand increase during that timespan. Meanwhile Brazil has seen its demand nearly double to 12.1 million tonnes in the same period. Their 2017 production was only 6.7 million tonnes.

Wheat is a major export for Argentina because of this sizable surplus. Brazilians have historically imported most of their wheat from Argentina, so they were forced to look elsewhere following the strict 2013-14 export quotas. The US became Brazil’s top wheat source in 2013 and 2014, the first time Argentina was not Brazil’s top supplier since 1997. Brazil even dropped their 10 percent import tariff on non-Mercosur countries for the bulk of 2014. The US exported wheat to Brazil for 28 consecutive months between 2013 and 2015. Prior to that, the longest stretch was just 8 months.

Brazilian wheat imports from Argentina returned to normal levels by early 2015. Buoyed by its second largest wheat crop ever, Argentina covered 84 percent of Brazil’s wheat imports in 2017 compared to just 27 percent in 2014. Still, Brazil recently began to allow wheat imports from Russia. The US also continues to export modest amounts to Brazil after getting its foot in the door. Brazil’s wheat consumption and wheat flour production continue to climb. In the past, Brazil was more than willing to fulfill their wheat demand with Argentine wheat. Argentina would be wise to provide for this growing demand and box out the recent bumper crops in Russia and any US exports.

Undercutting the US and Canada

Argentina should capitalize on decreasing wheat production and acreage in Canada and the US. Excluding 2013, US wheat exports to Central and South America have remained relatively flat, despite Mexico and other Central and South American countries have rising wheat demands. US wheat stocks are currently high, but if production remains low, the US will remain unable to substantially increase exports. Additionally, the bulk of US wheat exports go to Asia giving Argentina an opportunity to increase its claim on Central and South America.

Recent droughts in Canada and the US have also affected their export prices. Up-River Argentine wheat has been cheaper than US Gulf and Pacific Northwest soft wheat since September 2017. There are currently extreme drought conditions in southern Kansas, the United States’ top wheat producer. If drought persists and sustains higher prices, Argentina can undercut the US with lower prices for their South American neighbors.

Competitive, but convenient

The global wheat export market is extremely competitive, but North, Central, and South American countries chiefly import wheat from each other. Argentina has a geographical export advantage to Central and South American wheat markets. Many of these countries are net wheat importers due to climate and land constraints. Argentina has enough land and a more suitable climate than most of Central and South America. Ocean waters moderate temperatures and weather patterns in Argentina unlike in landlocked wheat regions of Canada and the US.

If production spreads southward and westward, Argentines can expect average wheat yields to decline. The fertile soils of Buenos Aires, Córdoba, and Santa Fe cannot be replaced acre-for-acre by lower wheat-yielding regions. La Pampa, Santiago del Estero and Tucumán accounted for 2.1 million wheat acres in 2017. Their weighted average yield was 2.43 tonnes per hectare, over 1 tonne per hectare less than the yields of Buenos Aires, Córdoba, and Santa Fe. Maintaining production in La Pampa and similar provinces will require much more area, and will lead to overall Argentine wheat yield dropping back below those of the US and Canada just after achieving parity.

Argentina doesn’t have to balance wheat with the dominating presence of soybeans and soaring corn production, but it may be in its best interest. The country has the ability to make a dent in Central and South American export markets as North American wheat faces tough climate conditions. Argentina should pay specific attention to US grain stocks, especially if US wheat production remains low this year. The US may take the chance to liquidate stored wheat if prices remain relatively high in 2018. If US stocks start to dwindle, Argentina could begin to flex its muscle in the western hemisphere’s wheat market.

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