INTERVIEW: RCEP deal likely to dent Argentina's wheat export prospects for SE Asia: BCR's Sigaudo

New Delhi — The Regional Comprehensive Economic Partnership agreement reached by certain Asia-Pacific nations earlier in November is expected to dent Argentina's wheat export prospects for the Southeast Asian region, Bolsa de Comercio de Rosario Analyst Desiré Sigaudo told S&P Global Platts in an interview.

The deal is likely to become a watershed moment for Argentinian wheat export efforts in Asia as major exporter Australia is a key participant of the RCEP agreement, which could open lucrative trade arrangements with other partners, including major wheat buyers like Indonesia, Vietnam and the Philippines.

Australia lost its huge chunk of market share in Southeast Asia after three straight years of drought ruined its wheat production capacity, allowing countries like Argentina and Ukraine to usurp the share in the most important wheat export market in Asia.

However, Australia now has a bumper export prediction in 2020-21, and is expected to claw back its market share in Southeast Asia, while weaker output prospects for Argentina due to dry weather conditions are expected to toughen competition for the South American nation.

This situation comes at a time when the RCEP deal has been finalized and could open a window of opportunities for wheat trade among the participating countries.

Australia is a direct competitor of Argentinian wheat in the southern hemisphere and "[it] is clear that [the RCEP deal] will improve the competitiveness of Australian wheat in the region," Sigaudo said.

Indonesia has been a top market for Argentinian wheat since the last few years in Asia, followed by Vietnam and the Philippines.

Argentina did not export any wheat to Indonesia in 2015-16, but its shipments soared to 1.4 million mt in 2016-17, the year when drought started in Australia, according to Argentina's INDEC data.

Since then, Argentina has exported a combined 6.8 million mt of wheat to Indonesia, while Australia shipments have fallen from the highs of about 5 million mt in 2016-17 to below 1 million mt in 2019-20, data from INDEC and UN's Comtrade showed.

"We foresee that RCEP will [have an] impact on Argentina's wheat exports to Southeast Asian countries but it is too early to tell how strong this effect will be. During the last few marketing years, Southeast Asia had become a key market for Argentine wheat," she added.

In 2019-20, wheat exports from Argentina to Southeast Asia accounted for 41% of its total shipments, according to the BCR.

Tough season ahead

Argentina has been facing prolonged difficult weather conditions since the start of 2020, which have largely impacted crop progress during the wheat planting window in early June and July for Cordoba and northern regions.

Since then, several agencies have been lowering production forecast for 2020-21 (December-November), starting from earlier projections of an upward 22 million mt to 16.5 million mt currently.

With the arrival of La Nina, dry conditions have continued over some parts of the country, but this is not expected to lead to further production estimate cuts as the harvest has been either completed or has reached advanced stages in the northern and central regions, according to Sigaudo.

As for the southern region that includes southern Buenos Aires and La Pampa, harvest progress is still catching up, but production forecast remains optimistic, up about 35% above 2019-20 levels, she added.

While southern regions are expected to offset the sharp decline in output in central and northern regions, this would mean taking the shine off the Gran Rosario port complex, which serves those two regions.

"We expect the ports located in the Gran Rosario Hub to ship less wheat due to production cuts in northern and central regions," Sigaudo said.

The port complex, billed as one of the most important agriculture networks, exported about 68%, or 7.8 million mt, of total wheat shipments in 2019-20, but is now on track to ship only half of that, according to BCR.

The outlook for the remaining December and early January also looks bleak for Gran Rosario port shipments, with only 653,000 mt of wheat seen in the line-ups, compared with 1 million mt at the same time last year, BCR said.

This comes at a time when the export season opens for Argentinian wheat and supplies rush to markets during usual years.

Argentina is expected to ship only 10 million mt in 2020-21, the lowest in the last five marketing seasons, BCR said.

Wheat commercialization in Argentina is also looking a bit unpromising at this point, with only 6.6 million mt of wheat marketed by farmers by the beginning of December, compared to 12.4 million mt of wheat sold in the same period last year.

The focus is now on logistics, as lower production in the north, which is what usually feeds coastal river transport, is limiting the efficient loading and movement of barges, according to Sigaudo.