Bull trend of agri commodities continues amid fall of global wheat inventories to record low

FE Team | Published: November 06, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Jude Webber in Buenos Aires and Javier Blas in London, FT Syndication Service
Argentina is set to restart its wheat exports, which were halted in March to guarantee supplies for the domestic market, in a move that could help to ease extremely tight global grain markets.
Buenos Aires is also expected to increase by up to 10 percentage points an already hefty 20 per cent tariff on grain exports, to try to raise revenue for the incoming government of president-elect Cristina FernÃ¡ndez.
Agricultural commodities analysts said the tariff increase would minimise any price impact from the re-opening of the export market, helping to keep international wheat prices high.
Sorin Vaslobal, a grains broker at cereal traders Plantureux in Paris, said: "It will add support to the actual bull trend of the agricultural commodities market."
Wheat prices in Chicago surged in October to a record high of $9.61Â¾ a bushel but have retracted since then to $8.03Â¾ a bushel, as farmers round the world plant more wheat for next year. Wheat global inventories have fallen to the lowest level since 1979, according to the International Grains Council, an intergovernmental body.
Northern hemisphere sowing is down and the other main southern hemisphere wheat supplier, Australia, recently slashed its forecast to 12.1m tonnes owing to extreme drought, well below the 20m-25m harvested under normal conditions.
Argentina is, under usual circumstances, the world's sixth-largest wheat exporter, with about 7.0m tonnes of sales a year.
Under Argentine law, exporters have to ask permission to make sales of grains abroad by applying to the export registries, but the wheat registry was closed seven months ago. Maize exports have also been closed since November 2006 with the exception of three days in June this year, when sales of 3.0m tonnes were permitted.
A person in the government confirmed a reopening of exports was expected to be accompanied by rises to the 20 per cent tariffs levied on wheat and maize and 27.5 per cent tax on soybeans. "It's not likely to be this week, but I don't think it will take long," they said.
Record commodities prices have helped Argentina's farm-based economy achieve a $7.19bn trade surplus this year, but pre-election spending by Ms FernÃ¡ndez's husband, the outgoing President NÃ©stor Kirchner, has outstripped budget revenues, and the trade surplus is well below the $9.0bn for January to September 2006. Higher export taxes thus offer a fast way of making money for state coffers.
The Sociedad Rural, one of Argentina's main farmers' groups, says export tariffs raised $4.15bn in the 2006-07 season, a rise of 71 per cent on the previous year. A 10- point rise in the soybean export tariff could raise an extra $1.0bn, it estimates.
Despite the absence of physical exports, Argentine futures sales have been flourishing. Argentina has already agreed the sale of more than 3.0m tonnes of wheat, and expects to export 9.0m tonnes this year.
But uncertainty about when exports will happen, and what volume will be permitted, may undermine Argentina in the eyes of the market and increase price volatility.
The closed export registry has also meant that farmers have not known how much tax they would be paying at the time they closed sales. Small producers may not have bargained for the fact that a 30 per cent export tariff on wheat could cost them about $96 per tonne.
"If wheat is at $320 tonnes [excluding shipping costs], and it usually costs about $10 per tonne to get it on a ship, and a 20 per cent export tariff hands $64 to the government, we get around $250 per tonne," said Sean Cameron, a farmer in the south of Buenos Aires province.