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Argentina's wheat answer begs another big question

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Argentina has saved itself some credibility by issuing its wheat harvest estimate, at last, as urged earlier this week.

Unfortunately, by answering one question – how much wheat it sees the country producing – it has raised another.

The wheat harvest figure it released, of 8.5m tonnes, is well below figures from other analysts.

Separately on Thursday, the Buenos Aires grains exchange restated an estimate of 10.35m tonnes, while the International Grains Council pegged the crop at 11.0m tonnes.

Argentina should, as a country with a history of intervening grain markets, reveal - fast - whether and how it intends to react to such a low harvest forecast.

Bad policy is not a fan, generally, of grain market intervention.

Sure, when crop disasters strike, soaring prices hurt consumers, raising pressure for action to depress food bills. But it is only through elevated prices that agriculture can gain the investment needed to raise its game and ensure it deals better with the next setback.

Indeed, intervention is largely to blame for soaring flour prices in Argentina, where they rose 87% last month to double year-ago levels according to the UN Food and Agriculture Organization.

Government interference in exports of wheat, as a key food crop, has left farmers unwilling to grow it, for fear of receiving below-par prices, with many planting barley instead.

Argentine wheat sowings last year fell to the lowest in more than half a century, on US Department of Agriculture estimates, and may have fallen further this year, depending on what commentator you believe.

Even bigger enemy

But if Argentina is to tinker with the wheat market, it is best to be upfront about it, as well as sticking with the policy it decides.

Political uncertainty is all downside, in food security terms. It raises prices, as the market injects a risk premium, but mutes the message to raise output in response.

Farmers doubtful over the rules they are playing to are hardly likely to go gangbusters on maximising output, in case the game changes during the many months between planting and harvest.

There are already enough clouds over Argentine wheat supplies, given the range of production estimates for this year, with the International Grains Council foreseeing a 10.5m-tonne crop and the USDA an 11.0m-tonne harvest.

The groups can't even agree on last year's outcome, which the Argentine farm ministry pegs at 8.2m tonnes, the USDA at 9.5m tonnes and the IGC at 8.5m tonnes.

Over to you, Carlos

Argentina's new farm minister, Carlos Casamiquela, faces a struggle to make things better for the country's consumers.

An 8.5m-tonne harvest is a weak hand to play for a country whose harvest has averaged more than 15m tonnes a year until last season's slump in sowings.

But he can certainly make things much, much worse if champions short-term consumer interests over long-term agricultural ones.

Whatever action he does take should be done with the need to boost sowings next year in mind, and pull the country out of its wheat production nosedive.


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