Wheat: During harvest pressure, the slate in dollars at the “export” exchange rate plummets

Wheat: During harvest pressure, the slate in dollars at the “export” exchange rate plummets

The differential exchange rate scheme, in force until December 10th, imposes high quotations in pesos for domestic wheat prices during harvest pressure, while in differential dollars the fall is notable.

Already officially immersed in the 2023/24 wheat season, wheat work at the national level is advancing slightly behind the average of recent cycles, but without generating too many surprises. According to the weekly report of the Secretariat of Agriculture, Livestock and Fisheries, 37% of the area has already been harvested. Since the first estimates began to arrive, the proportional progress of the 2023/24 crop was placed with great advantage over last season and modestly above average, although over the weeks, the pace has tended to approach the normal values, and even marginally behind.

Producing areas in the north of the country have already completed almost all the work, while, moving down towards the central region of our country, Santa Fe leads with 74%, followed by the provinces of Entre Ríos and Córdoba, with 63% and 54%, respectively. Meanwhile, no progress has yet been recorded in the province of Buenos Aires. Considering data from the last ten seasons, on average, between the last week of November and the first week of January, 72% of the target area is harvested each season. Therefore, we would be at the beginning of a period with high availability of Argentine grain and during the course of the next five weeks we would expect to have much of the wheat supply already harvested.

As a result, although the nominal values paid in pesos for wheat have shown a strong upward trend to reach AR$ 135,000 per ton during the week, valued in dollars at the differential exchange rate arising from Decree 549 in force since last October 24th the evolution has been downward, falling from US$ 250/t in mid-October to US$ 175/t at the end of the week, following the seasonal dynamics. On average, between October and November, when new wheat begins to flow, the slate tends to fall about 12%, a difference of 30 U$D/tn between the average prices of these two hinge months.

The logic of the internal commercialization of wheat during practically the entire second half of this year has been crossed by the commercial and macroeconomic uncertainty of the election year, which imposed caution. In a key weekend for the presidential transition, with the inauguration of Milei as president of the Nation agreed for December 10th and awaiting the announcement of new economic and trade measures, only with the advancement of the threshing and the latest improvement in the export exchange rate began to revive the domestic market. In fact, 45% of all new wheat booked was delivered between October and November.

Chinese purchases of US wheat boost Chicago prices

Turning to the international scene, wheat in Chicago has accumulated an important bullish rally since the beginning of last week. The May 24 contract posted gains of 11% between last Monday and Tuesday, reviving wheat prices that had been sideways since the beginning of October, and boosted by Chinese purchases of US wheat.

Indeed, in the face of production losses in Ukraine, Australia and Canada, which together account for 32% of world wheat exports, the market has begun to feel the pressure. Last Monday, the North Americans recorded the highest volume of wheat traded to China in one day since 2020. According to repeated reports, the impact of heavy rainfall at harvest time, mainly in the wheat-growing province of Henan, would have affected the quality of Chinese grain, thus increasing the proportion of feed wheat in their coffers, partly forcing them to look for surplus goods in other regions, even more so given that local domestic consumption is estimated to be on the rise.

Directly related to the above, during the past week, the weather instability over the Black Sea region has hindered the shipment of vessels from Russia, due to the logistical complications that storms have imposed on the waterways. This situation persisted for several consecutive rounds and would have contributed to the worsening of the upward trend in wheat.  

Russia has played a key role in the export market, depressing prices in general because of its great capacity to dump goods to the world due in large part to its excellent harvest, on average, during the last fourteen months, 4 million tonnes of Russian wheat was exported per month. November data indicate a slight slowdown in the trend, but market estimates suggest that the pace of Eurasian wheat will continue to rise next year on the back of another large crop, with almost 50 million tonnes projected to be exported. If realized, Eurasians would account for 24% of the world wheat market.

Source: https://bcr.com.ar/

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