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Argentina Drought May Halt Wheat Exports for 1st Time (Update1)
Bloomberg
June 29, 2009

By Matthew Craze

June 29 (Bloomberg) -- Argentina, the world's fourth largest wheat exporter last year, may withdraw from world markets for the first time in at least a century as drought reduces plantings.

Continued dry weather until September will probably cut the 2009-2010 harvest to as little as 6 million tons, a 28 percent decline from the previous season and equal to the amount consumed by local millers, said Eduardo Anchubidart, an economist at the Buenos Aires Cereals Exchange.

"The situation is now getting dangerous," Anchubidart said in a telephone interview. Argentina has exported wheat since at least 1910, when records began, according to the exchange's statistics yearbook.

Most sowing takes place from May to August and the bulk of the crop is harvested in December and January. Argentina exported 11.2 million tons of wheat last year and is expected to ship 4.5 million tons in 2009, according to the U.S. Department of Agriculture. Output from the current crop will be delivered in 2010.

The absence of Argentine wheat from international markets would force neighboring Brazil, the world's largest importer of the cereal, to purchase as much as 3 million tons outside Latin America, said Lawrence Pih, chief executive officer of Sao Paulo-based miller Moinho Pacifico SA.

A call to Argentina's Agricultural Secretariat by Bloomberg News wasn't returned.

Brazil Purchases

Brazil buys as much as 5 million tons of wheat a year from Argentina, said Ramiro Acosta, the exchange's chief economist. Neighboring Paraguay and Uruguay may make up for 1 million tons of the shortfall caused by the drop in Argentine production, said Pih.

In its weekly report published on June 24, the exchange cut its estimate of the area being sown to wheat for the third straight week to 2.9 million hectares (7.17 million acres), the least in a century, and said it may be reduced further.

This week's report by the exchange, due to be published on July 1, will likely forecast further dry weather, Anchubidart said. Heavy rains aren't expected to break Argentina's worst drought in 70 years until September, which is the beginning of spring in the southern Hemisphere, he said.

Even if rains come earlier, production is unlikely to surpass 8 million metric tons, said Anchubidart. That would still be the smallest harvest since the 1974-1975 season, according to exchange data.

Last Harvest

Argentina's last wheat harvest fell to 8.3 million tons from 16.4 million in 2007-2008 as the onset of the drought caused farmers to cut planting and dry weather throughout the growing season reduced yields, the data show.

Argentina's government would be more likely to build stockpiles of the cereal than permit exports if the harvest exceeds 6 million tons, said Pih, who imports 300,000 tons of wheat a year for Moinho, Latin America's biggest miller.

"It would be disastrous politically for them to import," Pih said in telephone interview.

The price of wheat on the Chicago Board of Trade has dropped 16 percent this month as collection progresses in the U.S.

Global production is forecast by the USDA to total 656.1 million metric tons in the marketing year that ends on May 31, 2010, the second-biggest world crop ever behind last year. Stockpiles this year are expected to jump to 182.7 million tons, the highest since 2002, USDA data show.

South Africa Prices

South Africa, which has imported 371,645 tons of wheat from Argentina this season, expects food inflation to accelerate if the South American country halts exports.

"If we can't buy from Argentina, we are going to have to pay much higher prices from other origins," National Chamber of Milling director Jannie de Villiers said by phone today from Pretoria. It will "impact food and flour prices, feeding into inflation," he said.

Last week, the yield on Argentina's benchmark 8.28 percent dollar bonds due in 2033 fell 39 basis points, or 0.39 percentage point, to 17.1 percent, according to Bloomberg data. The bond's price rose 1.25 cents to 46.75 cents on the dollar.

The Buenos Aires benchmark Merval stock index rose 1.3 percent to 1,579.99 points. Grupo Financiero Galicia SA (GGAL AR), the holding company for the country's largest private lender, rose 9.7 percent. Banco Patagonia SA (BPAT AF) fell 5.6 percent.

The following is a list of events in Argentina this week:

Event Date
Construction activity June 30
Vehicle sales July 3
Tax revenue July 1-3

To contact the reporter on this story: Matthew Craze in Santiago at mcraze@bloomberg.net; Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net.

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