Argentina crisis to hit grain in long term

By Andrew Shirley

ARGENTINAS current economic crisis is unlikely to have an immediate impact on the UK cereals market.

But the long-term effects could have worrying implications, reckon grain traders.

The country accounts for 10% of world wheat exports and has gone through five presidents in the space of a month.

Earlier this week (7 January) it was forced to devalue the Peso, previously pegged to the US Dollar, by 29%, causing an outcry from the general population.

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, the major purchaser of their grain, had to buy from America instead.”

In the short term, he reckons this could provide support for European markets, but he says it is tough to predict if prices will rise to meet US levels.

“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.”

However, Steve Harrison, a trader with Grainfarmers, does not expect the turmoil in South America to have much of an influence on prices over here.

“In a normal year there might have been more of an effect, but this season there is such a small exportable surplus.

“The market is dominated by domestic supply and demand – lower freight costs and a slightly weaker sterling will be far more significant.”

UK feed wheat values across the country are hovering around the 75/t mark, largely unchanged from last year.

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 and 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.”

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