Grain stocks are projected to rise by 39 per cent this year to 160m tonnes after Russian and the Ukraine planted large crops in response to rising global prices. But, according to Societé Generale, the global wheat crop could shrink to around 642 million tonnes in 2009-10.
This still a bumper harvest by historical standards but significantly lower than last year. With consumption expected to increase to 657m tonnes, the market could see a supply deficit by the end of 2009-10. This could contribute to what is expected to be an era of volatile prices.
An important factor in the situation is the disapperarance of Argentina as a reliable exporter. Farmers there are due to start planting the 2009-10 crop in less than a month and there could be a fall of some 30 per cent on the 2008-9 season and the lowest since 1902-03 when Argentina was starting to earn a reputation as the bread basket of the world.
The decline stems from three years of misguided government intervention in wheat trading in which farmers are periodically banned from selling overseas; a 23 per cent tariff on exports; and a serious drought that has slashed exports. A long-running conflict between the government and soyabean farmers will slash export income this year. Lower wheat planting levels will lead to a bigger shift to soya, though, which is Argentina's biggest cash crop.
El Tejar, one of Argentina's leading agricultural groups, has frozen investments at home and is looking elsewhere in the region, such as neighbouring Uruguay and Brazil, where the regulatory hurdles that plague Argentina are absent.
The whole history of Argentina over the last hundred years is an object lesson in how political meddling can undermine a country's propserity. As far as farm trade is concerned, export taxes are just as much a distorting mechanism as import barriers.