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 News

29/01/2018 0:00 - Agricultural Commodities Market
BLAS ROZADILLA
Good news in the international wheat market

As the crop year already finished, Argentine wheat continues to break records. This time, the good performance of the local cereal is focused on foreign trade. New marks in monthly sales to Brazil, the diversification of export destinations and the growth of the dollars generated characterize the great competitiveness in this crop.

The world wheat market has been in recent years the protagonist of major changes compared to what was observed in previous periods. Argentina, one of the key players in world cereal trade, mainly because of its exchanges with Brazil, is an important participant in these changes.

Focusing in our country, it can be seen on the basis of the Argentine Trade Exchange report published by INDEC (Argentine Institute of Statistics and Censuses) this week that wheat was the product that generated the second largest increase -in absolute values- in the income of foreign currency to the country, behind the item of automobile vehicles for the transport of goods. The year 2017 closed with a wheat’s export value of 2,364 million dollars, while in 2016 this amount reached 1,838 million. This leaves us with an increase of US$ 526 million, which translates into an increase of 28.6% year-on-year.

Cereal exports continue to grow and this is compounded by greater diversification in sales destinations, which is related to the great competitiveness that Argentine wheat is showing in the world. In the past year, external sales were distributed among 48 countries, while in 2016 they were 39, 23 in 2015 and only 12 in 2014. Brazil continues to be the main buyer of Argentine wheat, but this greater diversification reduces its incidence in the export market.

 

Considering the marketing year, which for Argentine wheat goes from December to November, it is expected that the recently started one will have the largest volume exported in the last thirteen, with about 13 million tons as estimated by the United States Department of Agriculture (USDA) in the January report on international trade conducted by the Foreign Agricultural Service. In this last report, it raised the projected value in comparison with that presented in December where it was 12.5 million tons. It should be remembered that the USDA includes in this figure the volume corresponding to flour and other derivative products. If only grain exports are taken into account, last season 2016/2017, which ended last November, registered record values reaching 12.8 million tons.

Another remarkable fact of great relevance for the Argentine wheat sector is the record of imports expected for Brazil. It is estimated that for the current season this country will acquire 8 million tons of cereal from the international market. This amount exceeds by 1.15 million tons the average of what was imported in the previous ten seasons.

Another record related to Brazil, but this time with Argentina as a protagonist, has to do with exports of this crop to that country. The last four months recorded the highest value exported to that country in relation to each respective month of the previous years (2012 to 2017). In relation to this, it is important to mention the data regarding wheat shipped to that same destination so far this January, which according to information from Thomson Reuters, is close to 680 thousand tons. This would be a new record for the month and represents an increase of 330 thousand tons compared to the average of the last five years.

 

Following the analysis of Argentina’s largest trading partner in the region, it can be seen, unlike what happened with export destinations for Argentine wheat, that Brazil has concentrated its purchases in Argentina in relation to previous years. Over the last year, it has decreased its wheat imports from other countries that have been - over the last few years - part of its main suppliers. Our country has advanced mainly to the United States, which has lost competitiveness in the Brazilian market. This can be clearly seen by analyzing the participations of the different countries in Brazilian wheat imports. Based on official data from the CONAB, it is observed that, considering international purchases until November 2017, Argentina has increased its presence in the Brazilian market in relation to its average share from the last 5 and 10 years, while the other suppliers (United States, Canada, Paraguay and Uruguay) have decreased it.

 

This fact, added to the drop in Brazilian wheat production compared to the previous season, which according to the USDA would be around 2.5 million tons less, could be an indication that the country's participation in the purchases of Argentine wheat will have a higher incidence this year. According to this week's report from the Global Agricultural Information Network (GAIN-USDA), about 50% of the exports of the current crop year would go to the neighboring country.

The loss of competitiveness of the United States is clearly seen in the evolution of its exports to Brazil so far in its marketing year, which runs from June to May, in relation to the previous ones. In the 2016/2017 commercial year, Brazil was the eighth country in importance in relation to North American wheat sales. If you compare the volume exported to date in 2016/2017 with respect to the current season, you see a fall of 90% (in 2017/2018), the biggest drop for this variable among the top 20 wheat importers in the 16/17, according to data from US Wheat Associates.

 

Based on data from the same association, we see a strong increase in the participation of the countries of the Middle East and North Africa in purchases of US wheat. These imports already accumulate 790 thousand tons more in the current marketing year than in the last one complete, an increase of 86%. This is mainly explained by the purchases of Algeria, which registered an increase of 114% with respect to January of the previous season and those of Iraq, which were not among the destinations for US wheat last season and it had already imported 608.8 thousand tons.

Algeria also stands out among importers of Argentine wheat, with a remarkable evolution. In 2016, this North African country imported 152.3 thousand tons, while in 2017 that figure increased to 1.8 million tons (10.8 times higher) which led it to occupy the second place as the main destination of Argentine wheat behind Brazil. Another notable increase is that of Chile that went from acquiring 250 thousand tons in 2016 to 863 thousand, an increase of 244%.

The week in the local market

In the last week, in the Rosario’s Board of Trade, wheat’s value registered consecutive increases every day when taking into consideration the reference prices of the Board of Trade. Last week ended with a quote that stood at AR$ 3,080 per ton. On Monday it closed with an increase of AR$ 20, to reach AR$ 3,100/t. The following days successive increases were recorded for an amount of $50, ending with a rise of $30 to close the week at AR$ 3,230 per ton, reference price corresponding to Thursday's operations. The open price offered by buyers for the cash market without discharged costs was for AR$ 3,250/t on Thursday.

Regarding the forward contracts segment, February/March wheat was the most sought by the operators and where the transactions were focused, with a greater number of active buyers compared to previous week. The open price for this position reached AR$3,300/t.Something to highlight within the forwards market is the record of an open value for the wheat of the 18/19 campaign, for delivery in December/January, which reached US$160 per ton. However, no transactions are recorded at that value, transactions made for that position would have been specified for higher amounts.

 

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