Wheat: Argentina gives up its participation in the Brazilian market
Wheat: Argentina gives up its participation in the Brazilian market
Monthly wheat exports continue to accentuate the fall. The “cheap” Russian wheat was able to position itself at values that make it attractive for the South American market.
The drought meant an unprecedented adjustment in many years for the wheat balance sheet, and exports are no exception. Indeed, the combination of a limited supply, sustained domestic demand and lack of incentives to improve export performance have led to a reduction in the share of Argentine wheat in the world market due to low price competitiveness.
The competitiveness of Argentine wheat and its share of the Brazilian market
According to its own projections, the total wheat supply for the entire 2022/23 cycle would be 14.4 million tonnes, the lowest level since the 2013/14 season, as a result of the sharp 46% year-on-year fall in production. With domestic demand largely inelastic, i.e. relatively constant at around 6 million tonnes, exports have borne the brunt of the adjustment.
On average, during the last seven seasons, just over half of the total supply was destined for the external market, while by the end of this cycle the proportion is projected to be 24%, close to the figures observed during the 2014/15 season.
The backwardness of wheat exports can be seen very clearly in the monthly breakdown of external sales of Argentine grain. There is a certain seasonality, which runs at the pace of the season, so that the highest volumes occur at the same time as the harvest, between December, January and February. Then the pace of commercialization tends to slow down as it moves away from the harvest.
However, since the beginning of the season, wheat exports have fallen sharply if considers the average values that have been managed over the last few years. During the first four months, 6.2 million tonnes less than average were exported, and January exports have never been so low since 2014. External commercialization has not recovered so far and has maintained a steady pace since the beginning of the calendar year. In contrast, domestic demand for wheat has been sustained so far this year and projections would indicate that the trend would continue.
According to official data, wheat stocks in storage, industrial and export plants were lower than in previous years during the first months of the season but began to recover towards the end of the cycle, with a certain normalization of stocks by mid-September.
Consequently, the bids for wheat have supported domestic prices which, although they are below those of last year, still exceed the average prices of recent years. In fact, considering only the official dollar prices for wheat as from 01st January this year, the average price per tonne of wheat is USD 281/tn, USD 81 above the average of recent years.
Argentine wheat has not had a very competitive year in terms of prices so far in 2023. Despite the dismal local season, many of the main exporting countries have had high levels of supply, including Australia, Canada and especially Russia. The Eurasian giant is said to have a production of 92 million tonnes and an accelerated farmer selling. The pressure on prices forged a competitive FOB market closing at the beginning of this week at 230 USD/tn for Russian wheat 12.5%, while the Argentine FOB touched 300 USD/tn.
When analyzing the dynamics of relative FOB prices between Argentina and Russia, prices before the outbreak of the Black Sea conflict did not tend to dissociate very abruptly, in fact, on average, from the beginning of the series until February 2022, the Argentine FOB price remained 11 USD above the Russian one. Now, faced with the unravelling of the war and its record production, Russian wheat began to run on a different track with export projections of 49 million tonnes, after the abrupt jump due to the initial uncertainty, both followed a downward trend in prices, but at different rates.
Competitive Russian prices and high local wheat prices were enough for the former to gain a foothold in the main market for Argentine grain. In fact, the spread between the two expanded by almost 600%, reaching a difference between Argentine and Russian wheat of 154.5 USD/tn. The gap settled at 75 USD in the period from the beginning of the war between Russia and Ukraine to the present.
For reasons of proximity, Brazil has historically imported large quantities of Argentine wheat, and our country’s share in the neighbouring market has always been high, with an average share of 80% per season. However, “cheap” Russian wheat has positioned itself sufficiently below local prices to become attractive for the neighbouring country’s market. Also, considering the advance to September 2023, Russia would account for 23% of the market, while Uruguay has also taken advantage of the context to increase its share, representing 15% of total Brazilian purchases.
Source: https://bcr.com.ar/
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