Argentine farmers are expected to plant more wheat this season, but analysts say drought and discouraging government policies will shrink seeded area below the 6.0 million hectares initially forecast.
Several factors are seen eroding 2006/07 wheat area: dry conditions in south-western Buenos Aires province, the No 1 grower; increased export taxes on wheat; and self-imposed limits on 2005/06 wheat exports aimed at containing inflation.
Farmers have seeded nearly half of forecast acreage with the 2006/07 crop, and analysts now estimate area of between 5.25 million and 5.6 million hectares.
"There is a physical problem, which is the weather. The drought is significant and many farmers are being cautious given their experience with a harsh drought last year," said Mariano Otamendi, a private analyst.
Scant rain hurt the 2005/06 wheat crop and slashed seeded area by 18 percent from the previous season to 5.16 million hectares. It was the lowest level in a decade in Argentina, one of the world's top five wheat suppliers.
Production sank to 12.5 million tonnes in 2005/06 from a record 16 million tonnes a season earlier, putting the government on guard against the possibility that scarce domestic wheat supplies could push up bread and flour prices.
To avoid a potential government ban on 2005/06 wheat exports - similar to the forced suspension of beef exports earlier this year - wheat exporters agreed in mid-May to limit their own sales abroad.
After encouraging limits on 2005/06 wheat exports, the government raised the referential price used to calculate export taxes on the grain, a move analysts say further discouraged wheat cultivation.
Wheat exports are taxed at a 20 percent rate, but exporters are paying 5 percent more since the government hiked the value of this key price.
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