Argentina's Wheat Industry Anticipates 60% Growth Following Milei's Policy Initiatives

The ascension of Javier Milei, Argentina's newly elected president, is paving the way for a potential surge in wheat production in the largest South American exporter of this vital staple grain.

Milei's commitment to dismantling currency controls that limit farm revenues and his ambition to eliminate agricultural export tariffs are poised to stimulate increased production. Experts, including Mariano D’Amore, a crop grower and a board member of the Bahia Blanca Grain Exchange in Argentina's main wheat-producing region, suggest that output could soar by over 60% in the upcoming growing season, reaching as high as 25 million metric tons. This surge, driven by Milei's proposed policy changes, draws parallels with Argentina's previous experience when then-President Mauricio Macri deregulated the wheat market eight years ago, resulting in a 52% increase in production that continued to climb to new records. The anticipated boost under Milei could be even more significant, given the recovery from a severe drought that has hampered output this year.

The agricultural sector plays a substantial role in Argentina's economy, contributing about 20% to the gross domestic product. Prior to Milei's election, some farmers harbored reservations stemming from past governments extracting around $200 billion from growers over the past two decades to address budgetary issues, stabilize the peso, and control inflation.

The potential increase in Argentina's wheat production could impact the global wheat market, already facing pressure due to substantial supplies from leading exporter Russia. Benchmark wheat futures in Chicago have declined approximately 20% this year, contributing to the containment of global food inflation.

In Argentina, a potential peso devaluation against the dollar could incentivize more exports, as these shipments yield U.S. dollars in return. D’Amore expects a favorable exchange rate for selling commodities, coupled with at least a partial reduction in export taxes.

Economy Minister Luis Caputo is set to announce the first measures, including a recorded message and a meeting with commodity exporter groups, after 5 p.m. local time on Tuesday. Under Macri's administration, deregulation prompted farmers to increase wheat acreage, a trend that is anticipated to repeat under Milei's leadership. This shift would signify a reversal after subdued investments in recent years.

While wheat prices have dipped this year, uncertainties persist regarding supplies from the Black Sea region amid Russia's conflict in Ukraine. Simultaneously, China has been actively securing imports. Robust harvests in Argentina would contribute to bolstering global supply reserves.

Potential expansions in Argentina's wheat acreage may come at the expense of soybeans. Farmers anticipate Milei may eliminate export taxes for wheat and corn while retaining them for soy, aligning with policies observed during Macri's tenure.

Moreover, the prospect of improved weather conditions, facilitated by El Nino-driven rains, could prove beneficial for farmers after enduring several consecutive droughts. These favorable conditions would particularly support the 2024-2025 wheat crop, primarily planted in June and July.