The agribusiness sector is a vital component of Argentina’s economy, accounting for a significant portion of its GDP and exports. However, drought in the country will reduce grain production and could result in the worst harvest in the last 15 seasons. According to surveys, a reduction of up to 50% in soybeans, 40% in corn and 50% in wheat production is expected. And exports of Argentina’s top commodities - soybeans, wheat, corn sunflower and barley - are expected to fall by nearly half this year.
Argentina is currently grappling with an unprecedented drought that has wreaked havoc on its economy, particularly in the agribusiness sector. The severity and duration of this drought have been described as unprecedented, with experts warning that it could have long-lasting consequences.
The agribusiness sector is a vital component of Argentina’s economy, accounting for a significant portion of its GDP and exports. The country is one of the world’s largest producers and exporters of agricultural commodities, such as soybeans, corn, wheat, and beef. However, the drought has had a devastating impact on crop yields and livestock, leading to a decline in production and a rise in prices.
The lack of rainfall has resulted in parched fields and depleted water reservoirs, making it extremely difficult for farmers to cultivate their crops. Many farmers have reported significant losses, as their crops have withered away due to the lack of water. In some regions, the drought has been so severe that farmers have been forced to abandon their fields altogether.
The economic repercussions of this drought are far-reaching. The decline in agricultural production has led to a decrease in exports, reducing the country’s foreign exchange earnings. Argentina heavily relies on agricultural exports to generate revenue and maintain a favorable balance of trade. The decrease in exports has put additional strain on the already fragile economy, exacerbating inflation and increasing the country’s external debt.
Moreover, the agribusiness sector plays a crucial role in employment generation, especially in rural areas. The drought has resulted in job losses, as farmers are unable to hire labor for their operations. This has further contributed to rural poverty and migration to urban areas in search of alternative livelihoods.
The Argentine government has taken several measures to mitigate the impact of the drought. It has provided financial assistance and subsidies to affected farmers, as well as implemented tax breaks and debt restructuring programs. However, these measures can only provide temporary relief, and a long-term solution to the drought remains elusive.
The decline in agricultural production, exports, and employment has put a significant strain on the country’s economy and exacerbated existing challenges. It is crucial for the government and stakeholders to work together to find sustainable solutions to mitigate the impact of future droughts and ensure the resilience of the agribusiness sector.
The problem becomes even more delicate because the agro-industrial sector accounts for around 65% of exports from Argentina, which is experiencing a shortage of dollars. With the drop in agricultural production, US$ 20 billion (equivalent to 23% of foreign sales in 2022) will stop entering the country.
The main product exported by the sector is soybean meal, which corresponds to 14.2% of the total sold abroad by the country. Bran is followed by corn (11% of the total) and soybean oil (6.9%).
Argentine exports of grains and derivatives generated revenue of US$1.746 billion in August 2023. The amount represents a drop of 9% compared to the previous month and 48% compared to July 2022. The data was released by the Chamber of the Oil Industry of the Argentine Republic (Ciara) and the Cereal Exporters Centre (CEC), entities that represent 48% of total Argentine exports.
In the eight months of the year, accumulated revenue is US$14.7 billion, a drop of 54% in the annual comparison. According to the entities, the inflow of foreign currency in August continued to be hampered by the severe drought that reduced the production of soybeans and corn in the country.
For soybean production, the exchange estimates a harvest of 21.5 million tons in 2022/23, a volume 50% lower than what was predicted at the beginning of planting. In the case of corn, the projection is for a harvest of 32 million tons, a decline of 40% compared to the initial projection.
TOP EXPORTS CUT IN HALF
“Thus, Argentina’s total grain production in the current campaign should be 82 million tons, well below the 127 million tons achieved in 2021/22. This leads to a drop in exports of grains and derivatives in the current cycle. Shipments abroad are projected at 56 million tons, 40% less than in the previous harvest”, highlights BCR, in a statement. Given this scenario, revenue from shipments abroad would total US$21 billion this year, below the US$39.5 billion last year.
Drought in Argentina will reduce grain production and could result in the worst harvest in the last 15 seasons. According to surveys, a reduction of up to 50% in soybeans, 40% in corn and 50% in wheat production is expected. Exports of Argentina’s top commodities - soybeans, wheat, corn sunflower and barley - are expected to fall by nearly half this year.
BRAZIL | ARGENTINA
Brazil is expected to increase exports of soybeans, meal, and oil in 2023, to compensate for the drop in the Argentine crop, which should be favored by the reduction in ending stocks in the United States.
We have reasons to believe that imports from Argentina should jump to 10 million tons, because the losses are very high, and even then, they will have to reduce crushing. There are reports of shipments of Brazilian soybeans leaving for Argentina from Porto Murtinho, in Mato Grosso do Sul, and even from Santarem, in the state of Para. Cerealists in Mato Grosso do Sul are estimating a record export of 1.6 million tons of soybeans to Argentina via Porto Murtinho and across the dry border to Concepción, Paraguay.
By the time I was wrapping up this article, Argentinean market was virtually muted amid an absence of clear bids and offers. However, bullish sentiment for FOB Up River set the tone in the market on the day amid strong deals Sept. 11. FOB premium for Up River October-loading cargoes 7 cents/bushel higher at plus 85 cents/bu to Chicago Board of Trade December (Z) corn futures based on an indicative value heard at that level, indicative offers heard at Z plus 88 cents/bu and no bids heard at the market close.
About the author
The author Luiz Carlos is Associate Director at SA Commodities, he started his career in early 90s developing services based on commercial support, strategic consultancy and projects for shipping agencies willing to attend sugar and grain vessels across various Brazilian ports. In 2009 when he joined in partnership with the Unimar Group to handle the commercial division for softs.