The rise of Javier Milei, Argentina’s newly minted president, is setting up the prospect of rapidly expanding wheat production in the largest South American exporter of the key staple grain.
Milei’s promise to undo currency controls that curtail farm revenues and his goal of ditching agricultural export tariffs will entice increased production. Output could jump more than 60 percent in the next growing season to as high as 25 million metric tons, according to Mariano D’Amore, a crop grower and a board member of the Bahia Blanca Grain Exchange in Argentina’s breadbasket region.
There’s historical precedent for that kind of increase. The last time Argentina deregulated its wheat market, eight years ago when then-president Mauricio Macri scrapped limits and taxes on exports, production soared by 52 percent and kept climbing to fresh records. The jump under Milei could be even bigger because crops will also be recovering from a severe drought that’s hampered output this year.
Argentina’s agriculture industry accounts for about 20 percent of gross domestic product. Before Milei’s election, some farmers had felt burned by governments that took some US$200 billion from growers over just the past two decades to pay for bloated budgets, shore up the peso and control inflation.
“The promised changes are radical compared with previous government’s, so expectations among the agricultural sector are huge,” said Alejandro Castro, the president of Bahía Blanca Chamber of Grains Arbitration.
More output from Argentina is likely to weigh on the world’s wheat market, which has already been under pressure because of huge supplies from top exporter Russia. Benchmark wheat futures are down about 20 percent this year in Chicago trading. The decline in the grain market has helped to keep a lid on global food inflation.
In Argentina, a devaluation of the peso against the dollar would likely encourage more exports, since the shipments fetch greenbacks in return. D’Amore of the Bahía Blanca exchange said he expects a better exchange rate for selling commodities, as well as at least a partial cut to export taxes.
Economy Minister Luis Caputo will broadcast a recorded message on his first measures Tuesday evening after 5pm local time, according to the president’s chief spokesman. Caputo is also expected to meet with commodity exporter groups Tuesday after his televised announcement.
Under Macri’s administration, deregulation encouraged farmers to boost wheat acreage, and D’Amore expects that to be the case again. That would mark a reversal after investments dampened in recent years.
While wheat prices are down this year, uncertainty still remains over supplies from the Black Sea region amid Russia’s war in Ukraine. At the same time, China has recently been snapping up imports. Bountiful harvests from Argentina would help add to global supply cushions.
Increases in Argentina wheat acreage would probably come at the expense of soybeans. Many farmers expect that Milei will scrap export taxes for wheat and corn, but keep them for soy, as seen under Macri.
Also, the prospect of improving weather could benefit farmers after several consecutive droughts. More rains fuelled by El Niño would help the 2024-2025 wheat crop that’s mainly planted in June and July.
by Clarice Couto & Jonathan Gilbert, Bloomberg
Comments