Puzzling wheat prices raise fears of manipulation in Argentina

Photo by Nick Nelson / Agweek.
Photo by Nick Nelson / Agweek.

Farmers in Argentina are worried that wheat-price anomalies signal the ruling Peronist party is starting to meddle in grain markets just months into its four-year term.

The Agriculture Ministry's free-on-board reference prices for wheat, used by exporters to pay farmers, are higher than those traders would settle at, according to Eugenio Irazuegui, head of research at local grain brokerage Enrique Zeni.

While elevated FOB prices may sound good for farmers, they're actually bad news. Traders and grain analysts like Irazuegui say such price distortions are a way to kick exporters out of the market, leaving more wheat for local millers. The idea is that the extra supply pushes down the cost of flour-based foods popular among Argentines.

Ever since it became clear last year that the party of former presidents Nestor Kirchner and his widow Cristina Fernandez would return to power, farmers have feared a resumption of anti-export policies.

When last in government, in the late 2000s and 2010s, the Peronists curbed wheat shipments to keep flour cheap at home. But the move backfired: In response to being cut off from global demand, farmers across the Pampas growing belt reduced plantings.


The issue of higher prices surfaced late last month, when farmers noticed the government index was about $20 a metric ton, or 9.5%, above market rates for wheat to be shipped in July.

Farmers alerted Felicitas Beccar Varela, an opposition lawmaker in the bread-basket province of Buenos Aires.

"There's a lack of transparency," Beccar Varela said. "We want an explanation for where these prices are coming from."

The Agriculture Ministry didn't comment.

Because the wheat harvest finished in January, there's little left to be traded. So the distorted FOB index for July will only affect a handful of shipments.

What's really concerning the industry is that the ministry has elevated prices for the next crop, which is being planted now and will be collected at the end of the year. While the FOB market for the new crop is still illiquid, prices are hovering around $192 for shipment from November. The government reference price is 8.3% higher, at $208.

"Setting high prices is a way of virtually shutting off exports and keeping wheat here, within our borders," said Juan Ouwerkerk, president of Alfa, a farm cooperative in southern Buenos Aires province.

Farmers' concerns about the FOB index come as President Alberto Fernandez seeks a role for the state in Vicentin SAIC, a giant soy exporter that went bankrupt. Even though Fernandez has pulled back for now from an outright nationalization, on the Pampas and in brokerage houses there's still suspicion the government would use Vicentin as a vehicle to steer grain markets.


Fernandez dealt a first blow to farmers when he hiked export taxes in December and March -- including an increase for wheat to 12% from 6.7%. Many telegraphed that move, selling crops early to avoid the higher levies.

More recently, there was a small victory for growers as the central bank exempted fertilizer importers from tighter currency controls that would have made prices soar.

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