Argentina crisis may harm UK grain long term

11 January 2002

Argentina crisis may harm UK grain long term

ARGENTINAS economic crisis is unlikely to have an immediate impact on the UK cereals market, although the long-term effects could have worrying implications, grain traders reckon.

The country, which accounts for 10% of world wheat exports, has gone through five presidents in the space of a month and was forced to devalue the peso, previously pegged to the US $, by 29% earlier this week (Jan 7).

According to Gerald Mason, an economist at the Home-Grown Cereals Authority, the chaos has helped boost US wheat prices by $8/t to $130/t since Christmas. "With the threat of currency devaluation hanging over them many Argentinean farmers stopped selling. This meant Brazil, their main grain customer, had to buy from America instead.

"Some buyers in the Middle East and north Africa could now buy EU wheat instead of US, but if no buyers come to the market then US prices may have to fall back."

But Glencore trader Robert Kerr believes the devaluation of the peso could be bad news for British farmers in the future. "Argentinean producers will effectively be receiving more money for their crops and will try to grow the maximum possible." This could put pressure on world prices, he adds.

Oilseed prices, however, should be more insulated. "There is a specific demand for UK rape oil because it is GM-free. Argentinean soya cannot be guaranteed GM-free." &#42

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