Argentina-The wheat crisis.

ARGENTINA-THE WHEAT CRISIS.

Argentine farmers may sow even less wheat this season due to a stubborn drought plaguing key growing areas as planting begins, the country’s agriculture secretary said in an interview yesterday. But also yesterday, President Cristina Fernández de Kirchner said the government had inked an agreement with leading grain export firms whereby the latter would buy one million tons of wheat at international equivalent prices per year.

The Head of State said the measure aimed to bolster the sowing of Argentina’s most traditional crop. Shipments would only start in mid-November at a rate of 100,000 tons per month. But farmers cast serious doubts on the announcement. In statements to the daily La Nación, Rural Society President Hugo Biolcati said he’d like to take a look at the official data backing the President’s speech: "It was highly inaccurate, it smacks of political drum-beating — or the lack of good advisors. While the price agreed upon may be good, it’s doubtful it’d prompt anyone to increase wheat sowing," the newspaper quoted Biolcati as saying.

Argentina has historically been one of the world’s biggest wheat suppliers, but a severe drought cut the 2008/09 crop by almost half and the outlook for 2009/10 remains bleak.

"There’s a drought problem in southern and southwestern Buenos Aires. We’ve got May and up until mid-June for things to get better (but) if that doesn’t happen, the wheat area will probably fall," Agriculture Secretary Carlos Cheppi told Reuters at an event organized by the Inter-American Institute for Cooperation in Agriculture.

"If it doesn’t rain, farmers won’t sow," he added.

Buenos Aires province accounts for about half of Argentina’s wheat output, which dropped to 8.3 million tonnes in the last harvest from 16.3 million in the previous year.

Farmers say the dry weather is just one factor explaining their dwindling interest in planting wheat.

Global prices have tumbled from the start of the previous wheat campaign and growers have been infuriated by the government’s efforts to tame local food prices with measures including export curbs and price-setting.

They say wheat is just not profitable and want the centre-left administration of President Cristina Fernández to make further cuts to wheat export taxes.

Also yesterday, the President refuted private forecasts for a contraction, saying Argentina’s economy will grow again in 2009.

"We will grow again this year, no doubt about it," Fernández said in a live televised speech, admitting that growth rates would be lower because of a global downturn.

Latin America’s third-biggest economy grew by at least seven percent in each of the last six years, but the global recession combined with local political uncertainties sparked a sharp slowdown starting in the fourth quarter of 2008.

Many economists predict the economy will shrink this year, but Fernández dismissed such forecasts.

"We paid no attention to those people who for six years said (our policies) were wrong ... and we had six years of sustained growth," the centre-left leader said.

"I get chills down my spine just thinking, if we had cooled the economy in 2007, as some said we should, or in 2008, what would Argentina be facing today?" Fernández said.

In the same speech, the president also revealed April’s tax revenue figures, saying the state’s tax take rose nearly 14 percent from a year earlier to $23.05 billion (6.2 billion dollars).

PATCHY DATA. Argentina’s government has yet to estimate the wheat area for the 2009/10 crop year, but the Buenos Aires Grains Exchange sees it shrinking to just 3.7 million hectares from 4.55 million last season.

That would be the smallest wheat area since Agriculture Secretariat records began in 1969, and it would likely mean farmers dedicate even more land to soybeans when sowing starts during the southern hemisphere’s spring.

Argentine farmers have been in conflict with the government for more than a year over export taxes on soy, their top crop.

They are also critical of the government’s wider agricultural policies and say increasingly patchy official data on everything from grains sales to crushing volumes is making it harder for them to plan their business.

Cheppi’s secretariat has not published its closely watched monthly production estimates for two months, something not seen in at least eight years.

However, Cheppi said the official forecasts would soon be posted. "I think we’re going to publish them in the coming days. What’s happened is that we’ve had a reorganization in different areas (of the secretariat)," he said.

The secretariat’s weekly crop progress reports have also become increasingly erratic and are often published days late or not at all.

Cheppi said the weekly reports might be scrapped altogether, saying they were only of limited use.

COMPLICATIONS. Customary formalities involved in the grain trade will be "more complicated" now that a new grain transaction monitoring system linked to the AFIP Tax Revenue Service has entered into force, replacing the grain exchanges, Javier Buján, head of the Kimei consultancy and chairman of the Buenos Aires Grain Exchange Arbitration Chamber says. Buján explained how a procedure as simple as handing out so-called "cooky-shaped labels" will hinder grain transactions now.

In this connection, he said some details of the new system have not been fully explained while others were showing that decisions were being taken without sufficient knowledge of how markets operate, thereby "it is sensible to assume that processing times involved in grain buy-sell operations are going to be hit unless a number of items are resolved in earnest."

Referring to procedural lead times, he said the new official rule establishes a minimum five-working day advance notice for registering purchase-sell contracts, a change which "will extend delivery times and payments by at least 10 days," relative to pre-reform procedures.

Buján further said businesses are not aware to date if they must register their contracts with the AFIP Tax Revenue Agency also including the three signatures of the parties involved: seller, broker and buyer. Furthermore he pointed at potential conflict situations "whose end effects are still unknown."

Another factor likely to lead to trouble, he said is the fact that the AFIP data processing system has not been configured to include contract registrations in digital form, thereby all transactions must be presented in print which in turn could lead to considerable lead times — while the market price of the commodity involved may be suffering fluctuations.