July 9, 2013

Argentine Government Threatens to Seize Wheat Supplies

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

In the midst of dwindling wheat supplies and rising bread prices, the Argentine government has enacted their controversial "Supply Law" that allows the government to seize supplies of grain from grain elevators, millers, or even farmers. The government had declared that wheat millers and grain elevators must supply the domestic market if they have any available wheat supplies. Companies found to have violated the order may have their wheat seized by the government, the company ordered to pay a fine or be closed, and the owners put in jail.

Argentina is a major wheat exporter and its number one customer is neighboring Brazil. After a poor crop in 2012, Argentina has exported too much wheat thus far this marketing year and could run out of wheat before the new crop is harvested in December. In a worst case scenario, Argentina may be forced to import wheat from Uruguay later this year. This could also impact Brazil that normally producers only about half of the wheat needed to supply its domestic market. The other half is usually imported from Argentina, but this year they will need to import wheat from other sources outside of South America. Conab is currently estimating that Brazil will produce 5.5 million tons of wheat and import 6.8 million tons.

Argentine farmers are in the processing of planting their 2013 wheat crop and they are expected to plant 3.8 to 4.0 million hectares, but farmers are reluctant to plant wheat or corn due to government interference in the export market. The government has a long history of limiting exports any time tight supplies result in higher domestic prices. The Argentine government does not interfere in the soybean export market and as a result, farmers continue to expand their soybean acreage at the expense of other crops.