July 19, 2013
Argentina Wheat Export Restrictions to Impact Brazilian Millers
Argentina is traditionally one of the largest wheat exporting countries in the world, but a disappointing wheat crop last year and reduced wheat planting this year has prompted the government to restrict further wheat exports for fear of running out of wheat and rising domestic bread prices. The restrictions will negatively impact Argentine farmers as well as Brazilian millers who traditionally import Argentine wheat to meet domestic demand.
Brazil is expected to produce 5.6 million tons of wheat and import at least 7 million tons to meet the anticipated demand of 11 million tons. Data from the Brazilian Wheat Industry Association (Abitrigo) indicates that imports from Argentina have already started to decline. During April, Brazil imported 577,000 tons of wheat from Argentine, but that fell to 315,000 tons in May. The volume of imported wheat during May was 200,000 less than during May of 2012. With the Argentine market closed for exports, Brazilian millers will now look to the United States, Canada, or other exporters for the wheat needed to meet the domestic demand.
Many Argentine farmers opted to plant barley this winter instead of wheat due to the restrictions imposed by the government. The president of the Rural Society in Argentina feels farmers will continue to cut back on their wheat production as long as the government continues to interfere in the export market. Without the possibility of exports, it is impossible for Argentine farmers to anticipate what wheat prices may be in the future, so they would rather not take the risk of planting wheat.
Any time the government restricts exports, which normally absorbs two thirds of the wheat produced in the country, the price of the grain is depressed due to an oversupply in the domestic market. Without access to the export market that normally absorbs two thirds of the wheat produced in Argentina, the price of the grain is at the whim of the domestic market.
The Argentine government has also decided to enforce the "Supply Law" which dictates that anyone deemed to be hording wheat may have the wheat seized by the government and the individual or company may face a fine or even prison.