Buenos Aires, January 16, 2019. Argentina is living in an unusual situation this summer: the wheat market is warming up even when the harvest finished a few days ago. Usually, prices tend to descend in the peak of the harvest (Dec, Jan) and climb in the months previous to the new one (Sep, Oct). But this year and based on local fundamentals, wheat prices are increasing during the summer.

Governmental authorities are monitoring the market since there are concerns that higher wheat prices move to flour, and bread, pushing the inflation rate.

The 2019/20 wheat output is estimated at around 19 million metric tons. But previous to December 10, farmers accelerated their sales to exporters, covering themselves in front of an increase in the export tax. Effectively, to December 10, when the new government took office, 12 MMT of wheat had been registered with a lower export tax rate than after December 13, when Alberto Fernández Administration updated the previous AR$4 per dollar exported to a percent rate of 12 points.

The financial capabilities of the exporters are bigger than the local milling industry ones, which bought the wheat they need month by month (around 550K tons). The milling industry needs 6.6 million metric tons per year, practically, the quantity of wheat not bought by the exporters. Then, the wheat balance is very tight this year, considering a 1.5 MMT of initial carry over.

Independently from external factors, wheat in the local market gone up last days, climbing around ten dollars in the futures market. “I am waiting that it reaches 220 dollars per ton before selling my wheat”, a farmer says in the Twitter network. People from abroad must consider that, with a 12% export tax, this price is equivalent to 250 dollars per ton.

On the other hand, bakeries grumble that flour price is rising and therefore that they must increase the price of the bread. Governmental authorities are concerned about this because they are pawned to fight the high inflation rate (54% last year), and particularly in the food basket.

Exporters and millers are trying to agree on a commercial framework that assures the last ones the wheat they need from now until the beginning of the next harvest (Nov 2020) at a certain price. The first part is easier than the second one. “There is sufficient wheat to supply the milling industry”, a prestigious grain broker said via Twitter too. But the Government is afraid that wheat price starts a bullish rally and they can not stop the moving from wheat to the flour and to the bread, opening a new battlefront for the Fernandez’ Administration.