Commodities: Drought Devastating Argentine Wheat

Argentina, another country that relies heavily on commodities to succeed, has been devasted by a drought which has crushed their wheat market. It is also decimating their cattle which rely on the grain for food.

This is the worst year for lack of rain since 1971, said one Argentine meteorologist. As usual, competing national weather forecasts make the situation unpredictable, as they contradict whether rain will come or not, and whether the drought will continue.

While some farmers in the U.S. were eyeing the situation with interest, hoping to get their wheat out of storage and make some money on it. That may not be though, as even if Brazil buys some wheat from the U.S. because of Argentine companies not being able to provide it, the cancellation of Nigerian imports of American wheat makes it difficult to see any value to wheat farmers in the U.S. It'll keep prices from rising in any significant way. Wheat futures fell when the Nigerian cancellation became public.

A continuing steady diet of bad weather could make a dire situation for agriculture in Argentina even worse, as they're already projecting losses of $5 billion in the overall sector for this year alone.

Other commodities being decimated are soy, corn and beef. Many cattle are dying for lack of food, as farmers do everything they can to keep them alive. Even if they succeed, breeding will be difficult because of lack of nutrition to the animals.

In many places the wheat storage bins are empty, and farmers have nothing but the cows to fight to keep alive.

The news out of Argentina is the wheat harvest could plunge by 44 percent for the 2008-2009 wheat season, while corn is projected to suffer a 27 percent drop, and soy, which is more resilient, is in the best shape in Argentina, looking for a 7 percent increase.

Because wheat in storage has been dwindling, and cattle dying of starvation, the government has temporarily suspended the minimum weight for slaughtering livestock so farmers can sell their livestock before they die.

On the assumption wheat from the U.S. may be imported by Brazil, prices increased some on Friday, but soy and corn prices were volatile, even though the numbers will fall significantly from earlier estimates from Argentina.

This news is grim for the country, as the entire agriculture sector is suffering, and so the nation. With wheat storage bins empty, as well as soy and corn underperforming, it's going to be a tough year for Argentina, as it struggles just to stay afloat.

While other commodities have been surging lately, many grains will struggle to maintain prices, especially wheat, as the dry weather in Argentina continues.