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Focus on Argentina

Argentina is one of the world’s largest exporters of grains and oilseeds but those industries have been buffeted by factors outside agriculture, notably changing government policy, currency devaluation, and the U.S.-China trade dispute that is shifting the direction of its exports.

In an annual grains report dated April 25, the U.S. Department of Agriculture (USDA) attaché said that a peso devaluation in 2018 means that production costs, particularly those denominated in local currency, will be lower.

 
“Farmers will have access to quality seed from last year and new wheat varieties that are high-yielding and in strong demand by local flour mills,” the attaché said.

The imposition of a four peso per dollar export tax on grain in September 2018 meant that exporters had to absorb an additional 9.3% cost, which is passed back to the farmer.

“Argentine grain producers, keenly aware of the impact of government policies on their bottom line, will be monitoring the upcoming presidential elections in October 2019 and incorporating potential policy shifts into their planting decisions,” the attaché said.

The country’s total grains production in 2019-20 will be 81.9 million tonnes, up from the 79.4 million forecast a month earlier, according to the International Grains Council’s (IGC) June 27 Grain Market Report. The previous year’s output was 83.9 million tonnes.

The IGC’s forecast for Argentina’s 2019-20 wheat production is 19.7 million tonnes, which has not been revised since last month and compares with 19.5 million the previous year.

Argentina’s 2019-20 maize production is put at 55.3 million tonnes, up from the previous year’s estimate of 52.8 million, but down from the 57 million produced in 2018-19.

Barley production in the country is forecast at 4.3 million tonnes, with no change from the previous month’s report, while the previous year’s figure was 5.1 million.

The sorghum crop is projected at 2 million tonnes in 2019-20, an unrevised estimate since last month, with the previous year’s output at 1.7 million.

Argentina is also set to produce 600,000 tonnes of oats, an estimate that has not changed since the previous month. Oat production in the previous market year was also 600,000 tonnes.

Second largest exporter

The IGC forecasts Argentina’s total grain exports at 50.2 million tonnes in 2019-20, making it the second largest exporter in the world, behind the United States. The figure was revised up from the previous month’s estimate of 47.6 million tonnes. The previous year’s exports were 44.3 million tonnes.

The country’s wheat exports are forecast at 13.7 million tonnes, unrevised since the previous month and up from 13.2 million the previous year. Its exports of maize in 2019-20 are forecast at 34.1 million tonnes, revised up from the previous month’s 31.4 million and also up from the 28 million exported the previous year.

The USDA attaché made a higher forecast for 2019-20 wheat exports than the IGC, calling for 14.5 million tonnes, including flour in wheat equivalent.

“Brazil is forecast to continue as the primary destination for Argentine wheat exports,” the report said, putting Argentina’s exports to that country at 6 million to 7 million tonnes. Next come Algeria, Morocco and other African countries.

“Any lower quality wheat may find a market in Southeast Asia for feed use,” the report said.

There are around 170 flour mills, most of them based in the Buenos Aires, Cordoba, Santa Fe and Entre Rios provinces. The attaché report cited industry sources as saying that they operate at half capacity.

“One company accounts for around 45% of capacity operating 12 plants with two other major companies operating seven and two plants, respectively,” the attaché said. A tax of three pesos per U.S. dollar on flour exports was put in place in September 2018.

“Since September, flour exports have dropped by more than 20%, and preliminary data shows that the volume of shipments in March 2019 were half that of a year ago,” the report said.

Barley exports in 2019-20 are forecast at 2.3 million tonnes, including 1.7 million for feed and 600,000 for malting, figures that have not been changed since the previous month’s IGC report. The previous year’s barley exports were 2.9 million tonnes, which included 2.3 million for feed and 600,000 formalting.

Argentina is now forecast to export 100,000 tonnes of sorghum in 2019-20, a figure revised down from the previous month’s 200,000 tonne forecast. Barley exports in 2018-19 were 200,000 tonnes.

Rice exports are expected to hold steady at 400,000 tonnes. Argentina is expected to produce about 800,000 tonnes in 2019-20, according to the IGC. That figure has not changed since the previous month and is the same as 2018-19’s production level.

Key destinations for corn exports are forecast to be Vietnam, Malaysia, Korea, Saudi Arabia, Algeria, Egypt and Chile, the attaché report said.

“These seven destinations accounted for more than 70% of total corn exports in calendar year 2018,” according to the report. “Argentina normally exports corn to roughly 100 markets.”

However, maize consumption is expected to reach a record 14.5 million tonnes in 2019-20, the attaché said.

“A stronger economy, improved purchasing power and continued larger exports of most meats and dairy products are expected to encourage greater production and thus larger corn consumption,” the report said. “The consumption of corn for grain ethanol is also expected to increase together with higher gasoline sales.”

The report said the official blending mix is 12%, half from the sugar industry and half grain ethanol.

Argentina is one of the world’s biggest producers of soybeans, behind the United States and Brazil. Its 2019-20 production is put at 54 million tonnes, an estimate revised down from 55 million forecast a month earlier and also down from the 55.6 million tonnes produced in 2018-19. Exports of soybeans are put at 8.7 million tonnes, unrevised from the previous month and down from the forecast for 2018-19 of 9 million.

An attaché report of May 4 identified soybeans as “usually the most risk-adverse crop choice as its production costs are relatively lower than competing crops, they provide greater liquidity and are a hedge against shifting economic conditions.”

“Producers are expecting adequate financing next season, however they will be relying less on banks and working directly with input providers as current lending rates are too high,” the attaché said. “Due to the country’s macroeconomic volatility over the past year, interest rates have risen to over 60% in peso-denominated loans. While lower rates are offered in dollar-denominated loans (around 5% to 10%), producers are wary of committing to such loan arrangements with the current economic climate.”

The attaché forecast a 1% fall in the Argentine soybean crush, to 41 million tonnes, because of trade conditions that favor the export of whole soybeans.

“Another factor influencing this decline is the recent removal of the export tax differential between whole soybeans and soybean products,” the report said.

The differential had facilitated the rise of the crush sector and its removal has hurt crush margins. Annual soybean crush capacity is 67 million tonnes, and 75% of supplies are expected to be crushed in 2019-20.

“Argentine crushers are maintaining crush levels by importing supplies from Paraguay, Brazil, Uruguay, and the United States and transforming them into soy oil and meal destined for foreign markets,” the attaché said.


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