Renata Cardarelli: Hello and welcome to Market Talks, a series of podcasts presented by Argus, addressing the events impacting commodities. My name is Renata Cardarelli and in today's episode, we are speaking with Argus Agriculture specialist, Jeffrey Lewis from Argus AgriMarkets service. Jeffrey followed the crop tour organized by the Bahia Blanca Brains and Products Exchange, BCP, to assess the condition of the wheat and barley crops in the southern part of Buenos Aires province.
Welcome, Jeffrey. Hello.
The tour lasted two days and sent two dozen teams in pickup trucks on four different paths to evaluate those crops. So tell us, Jeffrey, what did the tour reveal in terms of yields and protein levels?
Jeffrey Lewis: Well, OK, there weren't any big surprises out of the tour. We had already seen from other parts of Argentina that yields were much higher than normal.
The final estimate of the yields from that region around the port city of Bahia Blanca was 4.8 metric tons per hectare for wheat. And that was up from 3 tons per hectare a year earlier. So a really big jump there.
And the average barley yield was 4.9 tons per hectare, up from 3.5 tons the previous year. So, as I said, very much expected. And the concern was about the protein, how high or low protein levels would go.
And we saw that, yes, protein levels were lower. And that's, again, to be expected when you have higher yields. Generally, that results in lower protein levels.
And so the average protein level of 19 samples of wheat was 9.3 percent, compared with the average of 11 percent from the previous 28 years and 12.2 percent from 68 samples taken a year earlier. For barley, the average protein level in 32 samples was 9.25 percent. And the 10-year average for barley was 11 percent.
And last year they hit 11.6 percent.
RC: Oh, I see. So a big difference compared to the historical levels. But what conditions helped Argentina produce such a big wheat crop this season?
JL: Well, basically it was just a lot of rain. The harvest, of course, started in November. But into December it was also raining more than normal.
And that's why we were already expecting high yields. And we've had the Buenos Aires Grain Exchange and the Rosario Board of Trade are both forecasting record crops of wheat. In Buenos Aires they're expecting 25.5 million tons.
And in Rosario they're expecting 27.7 million tons. And they both raised their forecast multiple times. Both of them raised them in December, for example, after the tour.
RC: And with Jeffrey on the trip was Nicolás Alberdi, an agronomist for Agroalarcia. Nicolás and the rest of the team studied wheat and barley up close in the fields. Jeffrey, what did Nicolás tell you about the crops you saw on the trip?
JL: Well, there were four of us per team. So Nicolás and our two colleagues in the pickup truck, we went into four wheat fields a day and two barley fields a day. That was over two days. And what we saw was a pretty wide range of conditions, but mostly good condition.
For wheat, that was high yields, low levels of disease and insects. And in some fields, we also saw some lower yields and more presence of disease and insects. But it was mostly good.
And we saw wheat yields ranging from 2 metric tons per hectare, that's just sort of like a quick and dirty calculation by Nicolás, to 8 tons per hectare.
RC: That's interesting. And what did he say about the protein levels in the wheat?
JL: Well, it was Nicolás who explained to me that with higher yields, you usually get lower levels of protein.
And although it was too early to have actual numbers, we had seen quality reports from other parts of Argentina that suggested that protein levels were going to be low compared to normal protein levels. And given the high yields that we saw in the Agrotour area, Nicolás and other agronomists were already expecting protein below normal levels. For instance, Argentina only produces wheat with 11.5% protein, 12.5% protein.
And for this crop, there's just not a lot of those grades available. 12.5%, I don't think they're seeing at all. And they saw protein content as low as 7.5% in parts of the Agrotour area.
The results from the Agrotour came back later than expected because the harvests were delayed, and the wheat hadn't matured enough. So, for instance, we only got the protein content results in December, towards the end of December, rather than earlier in December, as we had expected earlier.
RC: And also on the trip with you was Guadalupe Bravo from the BCP. What did she have to say about the impact on global wheat markets of Argentina's big wheat crop?
JL: Well, Guadalupe explained to me that everyone is expecting big crops, bigger crops in this crop than a year earlier from other countries, such as Australia, from the European Union, and from Russia. And the USDA has forecast a record crop for this year around the world, the global production, 838 million tons.
That's up almost 5% from the previous year. And what Guadalupe explained was that that will mean more supply and export markets, and that's expected to put downward pressure on prices, especially low-protein wheat, because that's what Argentina is producing a lot of. I also spoke with Paulina Lascano, who is an independent markets analysis.
She was on the tour as well. And what she told me was that with these lower protein levels, 9% or even lower, that we're going to see winners and losers in the global market. So the winners will be farmers who have produced a higher protein grain, which is used for milling, and has a higher price than feed grain, because feed grain has that lower protein.
And so producers around the world who have that higher protein grain will be able to get better prices, or should be able to get better prices, while the producers of this lower protein are likely to get lower prices. And we've already actually seen that happening. The spreads between, say, 10.5% and 11.5% widened in the last few weeks, and prices are lower.
So we can expect to see a premium for 11.5% protein wheat.
RC: Oh, interesting, Jeff. What's happening recently, especially considering prices. Have you seen any more repercussions about the pertain content of Argentina's wheat becomes available?
JL: Yeah. I mean, in addition to seeing the premiums for the higher protein wheat, we've had various reports of some buyers cancelling contracts with Argentinian exporters because the wheat didn't meet the contractual specifications for protein levels. That we heard more in the beginning of December.
Recently, we haven't heard that so much. We've also seen some willingness from millers in Southeast Asian countries, particularly in Indonesia, willingness to experiment to see if they can use the 10.5% protein wheat for milling, as long as the wheat meets other specifications.
RC: And the final question, Jeff. What did you think about your experience with the tour?
JL: It was a very good experience. I met a lot of great people, people who couldn't have been nicer to me, people who were very willing to help me out, people I'm still in touch with. I learned a lot, and I'd do it again next year.
In addition to Nicolas, who was on my team, there were also two other great guys, Eugenio and Alejandro. And we just had a lot of fun. And I'd also really much like to thank the people at the Bahia Blanca Grain and Products Exchange for all their help and their support before, during and after the tour.
RC: Well, it seems to have been a very nice experience. And I'm sure you're looking forward to the next crop tour. Thank you very much, Jeffrey.
This and other episodes of our podcast are available on the Argus website. We'll be back soon with another edition of Market Talks. See you!
