In the middle of a “super campaign” of wheat, which could reach a record volume of 25.5 million tons, problems are beginning to surface in the cereal market, led by a marked drop in prices that are being paid to producers.
The collapse of the last few days was overwhelming. For example, on today’s board in Rosario, wheat closed at $232,600 per ton, which at an exchange rate of $1,444 per dollar, which is equivalent to US$ 161 per tonwhile last week the price moved around US$ 175 and US$ 180 per ton.
Thus, “if we take the official exchange rate, Today the price of wheat is at the level of December 2019“, indicated the analyst from the Rosario Stock Exchange (BCR), Matias Contardi.
“In fact, Argentina is today the cheapest origin for wheat internationally. So much so in the volume that we are selling abroad, with a more than interesting November in this sense,” Contardi concluded.
It is almost down US$ 20 in a few days has three main causes: on the one hand, a great local supply as a result of the historic harvest which is in full development; Secondly, a international market over offered and very competitive; and this is added the low protein quality of grainswhich motivates discounts from buyers.
In dialogue with Clarín, the president of Kimei Cereales, Javier Bujanexplained that even though Argentina has a harvest that will probably be a record, “will not respond to the demands of large global buyersespecially because of the protein quality: you need to have a quality of 10 and today we are talking about 8 or 9 and that has a penalty.”
This decrease implies you remove between 5% and 10% of the price that the producer receives, depending on the quality level of the grain.
In this sense, Buján reviewed that part of this problem is due to the fertilization process that was carried out: “Much of the urea that was applied during sowing and crop development was washed away by successive rains.which is why they did not have the necessary effect.”
That is why he considered that “It is going to be a whole issue how we are going to supply Brazil due to quality issues”since it is the main client in Argentina, which annually buys between 35% and 40% of the harvest.
“Until the wheat from Buenos Aires enters, we will not know what quality we have“If the yields are very high, the same thing will happen to us, but we are expectant,” said Buján.
For the president of the Federation of Collectors, Fernando Rivara“the fall is motivated by the super harvest we are having and an international market that is oversupplied.”
“It is a competition based on price and it must be lowered. But this is more complicated by quality”noted Rivara, who although he considered that “today prices do not help, fortunately, in the vast majority of cases, the volume harvested per hectare comes to supplant the drop in values.”
The drop in quality is due to a level of unexpected yields, which led to inadequate fertilization levels. “Nobody calculated to fertilize to have the yields we are having. When it is fertilized, it is done looking for average yields, but the yields doubled due to the climate and when there are a greater number of kilos, which is the percentage of protein, the hectoliter weight and gluten decrease.”
“For export, low protein is a problem, but for Argentine mills, The problem is the low gluten that makes the flour not bind.”, he stressed.
Trend
According to the Buenos Aires Cereal Exchange (BdeC), to date 30% of the planted area has been harvestedalmost exclusively in the north of the country, with around 8 million tons being placed on the market. This means that they still have to be threshed. 17.5 million tons from areas with wheat tradition.
However, Rivara does not see that the entry of harvesters into the fields further south will deliver better wheat, but rather he understands that the low quality “It’s going to be a trend that we’re going to have everywhere.except in some areas where there is a standard performance.”
This is why prices can go down even further: “I don’t know if we have seen the bottom of values, because there may be supply pressure. I don’t know if we’ve seen the worst, but I think we’re not far from seeing the bottom. “We will probably go down a notch in December and rebound again in January.”
The “problem” of the 24 million
To Enrique Erizemarket analyst and president of the Nóvitas consulting firm, one of the problems with the current situation is that the “super harvest” is not necessarily good news.
According to his vision, “We cannot have 24 million tons, it is not convenient, it is not a good idea. This volume, with 7 million for domestic consumption and 5 million for Brazil, leaves an exportable surplus of 12 million tons to sell to North Africa, the Middle East and Southeast Asia,” said Erize.
“The problem is that, being the seventh largest exporter in the world, we have to compete with the ranking of the most coveted sellerssuch as Russia, Ukraine, the United States, Canada, the European Union and Australia, which have comparative advantages. That is why it is not good to go beyond 18 million tons,” he concluded.