RENO, Nevada Ñ When American wheat groups get together to throw darts at competitors, Canada is usually a prime target, but this year a different country is in the bull’s-eye.
Canada poses little threat to American growers with only 19 percent of its 2004-05 spring wheat crop making the top two grades compared to the 10-year average of 80 percent.
The Americans are far more concerned about Argentina’s record 16 million tonne crop, up 2.5 million tonnes from last year, and its cut throat export prices.
Year-to-date exports from the South American country have reached 6.79 million tonnes, more than double the 3.1 million tonnes shipped during the same period in the 2003-04 marketing year.
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“They’ve been willing to sell for real bargain basement prices,” said John Oades, director of the U.S. Wheat Associates’ west coast office.
Argentina is making sales in the traditional domain of other key wheat exporters like Canada, the United States and the European Union.
In a typical year Argentina would move up to 60 percent of its exports next door to Brazil, where it enjoys preferential trade status. But Brazil had an excellent 2004-05 harvest, limiting its year-to-date wheat imports from Argentina to 1.2 million tonnes, down from two million in the same period last year.
To replace those lost sales, Argentinean exporters are selling deeply discounted wheat into markets like Egypt, where it hasn’t been a player for years. It has already sold one million tonnes to that destination.
They are also providing stiff competition for American exporters in Latin America and undercutting subsidized European wheat in North Africa.
“(The Europeans) are not subsidizing high enough to beat back the Argentinean menace that is coming their way,” said Oades.
Earlier this year Argentine wheat was selling at $105-$112 US per tonne. That was competing with U.S. hard red wheat priced out of the Gulf of Mexico at $150 per tonne.
Lately that gap has narrowed with the export price creeping up to $115-$120.
“I think the Argentinean exporter figured out they are leaving a lot of money on the table. They don’t need to sell that cheap,” said Oades.
The big unknown is whether this year was an anomaly or whether Argentina is poised to take wheat markets by storm, as it has done with soybeans.
Oades suspects it is more of the former than the latter. Although the country is capable of consistently producing 16 million tonnes of wheat, this year’s crop was the result of superb weather, not soaring acreage.
While marginal land continues to be converted into crop production at alarming rates, he expects most will be seeded to soybeans and corn, two crops where Argentine growers have a bigger competitive advantage over farmers from other countries.
That said, there is potential to expand all grain exports if the country improved its transportation infrastructure and got on top of the rampant inflation that is forcing many farmers to hold onto grain stocks until they absolutely need the cash.
“Those hard commodities are a hedge against inflation, which has slowed down exports,” said Oades.
