Wheat market guessing on Argentine crop
The global wheat market has the least clarity in five years on South America's biggest crop as Argentine growers hit by adverse weather say the government is exaggerating harvest estimates to contain price increases.
The government's forecast for the crop farmers started harvesting in November is 7.1 percent higher than the Buenos Aires Grain Exchange's, the largest discrepancy since at least 2007. Argentina's biggest grain bourse estimates output will slump 30 percent to a three-year low of 9.8 million metric tons, while the government estimates 10.5 million tons. The Bahia Blanca exchange says output may fall to 8 million tons.
Argentina's wheat crop has been harmed by heavy coastal rains and the first inland dust bowl in 85 years after drought curbed output in the U.S., Russia and Australia. The government's reluctance to fully acknowledge the impact of bad weather on wheat production adds to a track record of challenging double-digit inflation data from private forecasters. The country's anti-inflation policy this month led it to halt exports of the grain to ensure domestic supplies.
"The Buenos Aires Grain Exchange does a phenomenal job because they put out something weekly and it's a fantastic report," Mike Zuzolo, president of Global Commodity Analytics in Lafayette, Indiana, said in a Dec. 18 interview. "The government says production is higher because they want to keep prices down so they don't have to worry about inflation."
Wheat prices in Chicago have risen 21 percent this year after droughts in the U.S., Australia and Russia, last year's biggest exporters, cut production. Wheat traded on the Rosario Futures Exchange in Argentina has surged 89 percent in the same period, reaching a record high on Sept. 14.
"Argentina is more of a global force in the corn and soy markets than in wheat but any and all restrictions on Argentine crops of any kind will be deemed important by global grain traders," said Sal Gilbertie, who helps manage $69 million of assets as the president and chief investment officer of Teucrium Trading LLC in Santa Fe, New Mexico.
Since 2007, when President Cristina Fernandez de Kirchner's predecessor and husband Nestor Kirchner overhauled the statistics agency, Argentina's inflation data have been disputed by economists and politicians. The country has reported average inflation of 8.8 percent a year since then. Opposition lawmakers say prices rose 25 percent in November from a year ago.
President Fernandez denied any wrongdoing on the way Argentina reports inflation as recently as September in a speech at Georgetown University in Washington. Alfredo Scocimarro, a spokesman for Fernandez, didn't respond to an e-mailed request for comment on official inflation figures.
Argentina's official wheat estimate has exceeded the Buenos Aires exchange's forecast in seven of the past nine years by 5.4 percent on average, according to data compiled by Bloomberg.
The discrepancy has narrowed some since Nov. 22, when the government forecast 11.1 million tons. Still, the exchange for the Bahia Blanca area, which produces about half Argentina's wheat crop, expects production to decline to as low as 8 million tons after damage from heat and wind, said Aldana Ferradas, an agronomist at the bourse.
The Aaprotrigo growers association estimates output of as little as 9 million tons, said Alejandro Conti, a member of the group's board of directors who gave up on planting the grain in the past two years because of government policies, switching to barley and soybeans.
"The reports from the cereals exchange end up matching what we hear from the field so we have no reason to doubt the reports," Teucrium's Gilbertie said by telephone on Dec. 18. "I rely on reports from the field from Argentina."
Even as the government is slower to cut its outlook than grain exchanges and growers associations amid damaging weather, this week it halted all wheat shipments to avoid domestic shortages that would push up prices. Wheat exports were suspended until at least the end of January, Oscar Solis, an undersecretary at the Agriculture Ministry said yesterday in a telephone interview from Buenos Aires.
"We've always said that we're a government that aims to privilege the local consumer," Solis said of the exports suspension. "We're not changing the rules of the game."
The South American country will produce 11.5 million tons of wheat in the current 2012-13 season, the U.S. Department of Agriculture said in a Dec. 11 report, in line with the Argentine government's October estimate. The USDA adjusted its productions forecasts in the December report for Canada and Australia so that they coincided with the projections from government agencies in those countries.
Argentina's exports will total 5.5 million tons, making it the eighth-largest shipper of the grain, according to the USDA. The U.S. is expected to be the world's largest wheat exporter, followed by Canada, Australia, Russia, Kazakhstan, India and Ukraine, the agency said. The 27-country European Union will account for 18 million tons in exports.
"Local buyers are tired of this policy that destroys transparency in the price formation because it's a market under government intervention," Aaprotrigo's Conti said. "The government figures are wishful thinking."