August 24, 2015

Flooding in Argentina impacting 2015 Wheat Crop

Wheat farmers in central Argentina are assessing the amount of damage done to their 2015 wheat crop from heavy rains that have fallen over the last two weeks. Regions of Buenos Aires and Santa Fe recorded some of the worst floods in thirty years and the full extent of the damage is still being assessed.

Argentine farmers had already reduced their wheat acreage by approximately 700,000 hectares to 3.7 million or a 16% reduction from the 4.4 million hectares planted in 2014. The fear is that the recent flooding will reduce the acreage even more. Under the best case scenario, 200,000-300,000 hectares may be lost. Under the worst case scenario, the losses could reach 700,000 hectares. The final extent of the losses will be determined by the amount of additional rainfall received over the next few weeks. If it stays relatively dry, which is what the forecast is calling for, the water will drain away without any additional loses. Conversely, any additional heavy rain could increase the losses.

Even if the weather turns dryer over the next few weeks, there could still be additional flooding in September and October when the wheat is flowering due to the strong El Nino in the Pacific Ocean. Strong El Nino's are usually associated with heavier than normal rainfall in Argentina and southern Brazil during the Southern Hemisphere's spring months (September, October, and November).

In 2014, Argentine farmers harvested 12.8 million tons of wheat, but some estimates now put the 2015 wheat crop as low as 8-9 million tons.

The current wheat acreage in Argentina is one of the lowest amounts since the 1950's. Argentine farmers have been losing interest in wheat production due to government interference in the wheat export market. Whenever a lower than expected wheat crop threatens to push up domestic wheat prices, the government restricts wheat exports in an effort to hold down domestic inflation. Farmers are afraid that the desire to hold down inflation may be even more pronounced this year due to the run-up to the presidential election in late October. Therefore, farmers decided to reduce their exposure to low wheat prices by reducing their wheat acreage.

Brazil generally only produces a little more than half of the wheat needed to supply the domestic market and they import the remainder primarily from Argentina. There are concerns if the Argentine wheat crop will be large enough to supply all of Brazil's needs. Whenever wheat supplies from Argentina become tight, Brazil turns to the United States of Canada for their supplies.

Farmers in Parana are in the very early stages of harvesting their wheat and they are concerned that record high rainfall during the month of July could impact their production. Additionally the forecast is calling for above normal rainfall during September, October, and November due to the strong El Nino. The biggest problem for Brazilian wheat production are heavy rains during harvest and farmers in southern Brazil are concerned about their wheat crop if the predicted rains actually do develop. Brazil is expected to produce 7 million tons of wheat with a domestic consumption of 11 million tons.