What to Consider if You Are Trading Argentina Wheat in 2022

Reading time: 6 minutes

Argentina is the single largest producer of Wheat and one of the largest producers of Grains, Oilseeds & Vegoils in South America. Wheat is one of the staple products of Argentinian agriculture, with Wheat flour being the most demanded. Additionally, as part of the MERCOSUR, a commercial agreement between major South American countries, Argentina is a critical supplier of Wheat products for the rest of the continent since they rely on Argentina first and the rest of global suppliers second.

What are the particularities, challenges, and opportunities of Argentina Wheat?

Argentina Wheat Growth In 2021/22 & Food Inflation

Argentina Wheat supply comes in late in a calendar year (harvest starts in mid-to-late December and finishes in January the following year) since most of the global supply produced lies in the Northern hemisphere, thus setting the timing for most importers. In marketing year 2021/22, global Wheat supply is vastly limited by the poor dry conditions in North America, as well as hail damage and floods in Europe and the Black Sea. Moreover, the volatility induced by the Russian export tax destined to limit exports forced millers to diversify their pipelines. Contrarily, the Southern Hemisphere had a plentiful production.

Figure 1: Argentina Wheat Supply and Demand MY 2020/21 v. 2021/22

Argentina, much like Australia, is on pace to set an all-time record of its Wheat crop in 2021/22. The latest Buenos Aires Grain Exchange report raised the production estimate from the previous month to 21.5 Mmt (agweb.com). This represents a 22% increase in Wheat production YoY. Exports (including Wheat flour) are also forecasted to substantially increase as USDA forecasts 14 Mmt in 2021/22, a 40% increase YoY, thus representing 65% of the total supply consumption in 2021/22, versus 57% in 2020/21. Nonetheless, Argentina also faced global food inflation in 2021.

Figure 2: Argentina Wheat FOB Spot Cash Prices From Jan 2021 to Jan 2022

Argentina Wheat FOB spot cash prices in Figure 2 shows how, since Q2 2021, Wheat prices surged. Global food prices have increased severely with inflation due, in part, to the persisting Covid-19 pandemic and the global bull market leveraged by China, but also due to the depreciation of the Argentinian peso against the US dollar. To curtail rising domestic food costs, which already impacted Soybean earlier in the year and forced farmers to stock goods, the Argentinian government plans to reduce exports to 12.5 Mmt (Bloomberg), a 25% increase YoY still. However, January 2022 prices still show a seasonal decrease after the Q4 rally, perhaps due to the large crop. With increasing global demand, can Argentina retain its edge in South America?

Access 44k Wheat & Wheat Complex Monthly Cash Prices from Argentina, United States
& Up to 23 Other Origins

Free & Unlimited Access In Time

Will Argentina Remain the Largest Provider of Wheat for South America?

Argentina Wheat is used for both Feed and Milling with both qualities available. Brazil is the most important importer of Argentina Wheat as a part of Brazilian food culture is based on bread & pasta. Moreover, Brazil is one of the largest producers of beef meat in South America (along with Argentina), and the cattle industry requires Feed Wheat.

Figure 3: Top 5 Destinations for Argentina Wheat Exports Between Dec 2020 & Dec 2021

The top 5 destinations in 2020/21 for Argentina Wheat in Figure 3 show Brazil’s importance for Argentina. During 2020/21, Brazil imported around 50% of all Argentina Wheat available at export. Chile is the second-largest importer, closing the list of South American countries in the top 5 destinations. Argentina also has an essential pipeline in Africa, with Morocco and Kenya, and South-East Asia with Indonesia, the single largest importer of Wheat globally.

Argentina is currently developing the culture of its GMO products, including Wheat, to better face the increasingly extreme weather it suffers from during Summer and boost its crops’ yield and production. This shift in policy raised serious health and safety concerns in Brazil as it depends strongly on Argentina Wheat. However, in November 2021, Brazil cleared Argentina’s GM Wheat products for human consumption with guarantees on the Argentinian side (Reuters), dispelling doubts about the future of Argentina Wheat exports.

Track Wheat & Wheat Complex Vessels From Argentina to Brazil, Chile, & Up to 66 Other Destinations

Free & Unlimited Access In Time

In a Nutshell

Argentina is the single largest Wheat producer in South America, and as part of the MERCOSUR, it relies heavily on member countries for its Wheat exports. In 2021/22, Argentina is expected to have a record Wheat crop, with the latest report raising the total production to 21.5 Mmt, representing a 22% increase YoY. However, due to surging food and peso inflation, the government is limiting Wheat products export volumes to try and curb domestic inflation.

Argentina can rely on Brazil, which imported around 50% of all Wheat products in 2020/21. Nonetheless, the increasing volume of GM Wheat produced in Argentina to accommodate for more extreme weather conditions laid doubts on its export’s future. In November 2021, Brazil cleared Argentina GM Wheat products for human consumption, thus ensuring future crops exports.

All in all, Argentina Wheat is critical in South America as it supplies human food consumption and animal feed for Brazil, the largest country in the region, and Chile, one of the strongest economies. However, Argentina also supplies countries in Africa as well as South East Asia. Exports to Western and Southern Africa could further increase in the future, depending on whether they will accept GM Wheat products or not.

3 Potential Challenges & Opportunities For Argentina Wheat In the Coming Years

Extreme Weather Events:

In 2020/21 and 2021/22, two consecutive La Niña events have shown how vulnerable crops can be to extreme weather events. With climate change bringing more and more uncertainties, these extreme weather events could create more important supply issues in the coming years.

GM Wheat:

GM Wheat products in Argentina prove that they perform better in harsh dry and hot conditions, which could prove a viable long-term solution to improve yield and production. Brazil clearing the product for human consumption is already a step towards democratizing GM products in other countries.

Competing on a Global Scale:

With increasing supply thanks to GM Wheat, Argentina could scale up its Wheat production even more. Doing so would allow Argentina to compete with Australia for parts of the Indonesian market and increase the reliance of African countries on Argentina Wheat.