Break in Clouds for Macri as Argentina Revs Wheat Harvesters

(Bloomberg) -- Artillery is arriving for President Mauricio Macri’s battle to revive the Argentine economy.

Farmers in Argentina’s bread basket are on course to reap bumper yields in December, with a record wheat harvest raking in export dollars and tax revenue after a tumultuous year that has seen the currency plummet and Macri turn to the International Monetary Fund.

Growers will collect 19.2 million metric tons of wheat in the coming weeks, eight percent more than last year, according to the Buenos Aires Grain Exchange. Much of the wheat is sent to millers in neighboring Brazil.

Argentina’s wheat shipments will be worth about $3 billion, with another $750 million coming from barley, which is snapped up by Saudi Arabia for animal feed, said Gustavo Lopez, an independent farm consultant. Macri needs those crop dollars and export taxes of around 10.5 percent to narrow twin trade and budget deficits and rein in bond spreads.

“Wheat dollars are a bridge for Argentina over the summer months, and this year they’re going to be especially important,” said Martin Vauthier, an economist at Buenos Aires-based consultancy Eco Go SA. “Capital inflows always help to bring down country risk.”

Fiscal austerity and sky-high interest rates are in place to calm the peso, which has lost about half of its value this year. But the mix is strangling an economy that’s expected to contract by more than 2 percent. Farming is therefore emerging as a ray of sunlight for Macri, providing a much-needed boost to gross domestic product.

Growers have bet big on wheat and barley planted in winter after the worst drought in decades crippled production of soybeans and corn. The upcoming harvest will shore up their finances, rescuing the seasonal investment cycle, said Eugenio Irazuegui, head of research at grains brokerage Enrique Zeni SA.

As profits are reinvested in the next round of bean and corn planting, the “agricultural push” could spur a return to modest growth in 2019, Bradesco economists led by Dalton Gardimam wrote in a report. That would improve reelection prospects for Macri’s coalition, dampening investor concerns about a reversal of his pro-market policies.

Fields in the winter-crop belt in southern Buenos Aires and La Pampa provinces have withstood frosts and wheat yields will rise 13 percent year on year, according to a crop tour last week organized by the Bahia Blanca Grain Exchange. That will compensate losses in regions to the north.

“Argentina needs this harvest to avoid a debacle,” sad Ignacio Philipp, a grower in Bahia Blanca who farms 5,000 hectares (12,300 acres). “When the farm sector does well, the country does well.”

--With assistance from Ignacio Olivera Doll.

To contact the reporter on this story: Jonathan Gilbert in Buenos Aires at jgilbert63@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Will Wade

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