Lower Argentina wheat forecast falls on empty market

Argentina's Rosario Board of Trade (BCR) has again trimmed its forecast of Argentinian wheat production in 2022-23, but the figure still fails to fully reflect market views on the extent of drought and frost damage, with Argentina's traditional buyers already looking to source from elsewhere.

BCR on Wednesday cut its forecast for Argentina's wheat production this marketing year by 300,000t to 11.5mn t. The board declined to cut production as far as 11mn t, citing better-than-expected yields in the Entre Rios region, which could offset drops in Cordoba, Buenos Aires and Santa Fe.

The revision comes after the US Department of Agriculture (USDA) cut its Argentinian production figure by almost a fifth in its December report to 12.5mn t. The department similarly downgraded its estimate of the country's 2022-23 exports by a quarter to 7.5mn t.

But estimates released by both the BCR and USDA remain out of step with the views of local traders, who for the past month suggested that production could be as low as 10mn-11mn t.

Argentina's exportable surplus could be as low as 3.8mn-4.8mn t in this scenario, assuming domestic demand in line with the USDA figures for previous years at 6.15mn t.

Most of this diminished surplus is likely to ship to neighbouring Brazil. The USDA expects Brazil's own production to reach a record 9.5mn t, up from 7.7mn t the previous year, but it projects the country's imports to decline from 6.4mn t to 5.6mn t. This is partly because Brazilian demand depends on the country's own export pace. All the while a net importer, Brazil exported a record 3mn t last year, and the USDA forecasts this will rise to 3.5mn t in 2022-23.

Since October, Brazilian importers have unusually turned to Russian wheat in a bid both to fill the shortfall in Argentinian supply and avoid inflated prices in the local region. Argus assessed the Russian 12.5pc wheat fob price at a $68.50/t discount to its Argentinian 12pc wheat fob price on Wednesday, and freight rates continue to determine a cfr price advantage for buyers seeking Russian wheat. Russian sellers loaded three Handysize cargoes of wheat bound for Brazil in the first eight days of December, vessel line-up data show.

But Brazil is not the only traditional buyer to slowly turn its back on Argentinian wheat this year.

Buyers in eastern Africa are already looking hopefully towards cheaper — and more plentiful — supply from Australia, where new-crop exports have begun after a late start to a bumper harvest. But importers will have to wait some months before Australian exports fully ramp up to historical maximum capacity of about 2.5mn t/month in March-August. Questions over Australian milling wheat quality and protein levels also remain after the crop suffered heavy rainfall and in some regions flooding.

Moreover, slow sales of Argentina's new-crop wheat — Argentinian farmers are currently reluctant to sell new-crop product forward in case they find themselves unable to fulfil contracts — mean that export sales could miss a window of relatively tight prompt supply in the global market, and instead arrive later in direct competition with fellow southern hemisphere exporter Australia. Argentina's cumulative wheat export sales lag last season's volumes by 3pc at 23.56mn t, with the shortfall coming from significantly lower new-crop export sales — down by 52pc on the year at 5.5mn t, despite a marked improvement to this pace over the week ending 7 December.

Buyers are forced to seek northern hemisphere alternatives. Local traders cite growing demand for German milling wheat in central and sub-Saharan Africa, with German sellers relatively behind in 2022-23 crop sales compared with neighbouring France. Russian wheat is also feasible for some importers, but other buyers cite difficulties in securing financing for wheat of this origin.

By Claudia Jackson