In the last year and a half, agriculture experienced a strange paradox: almost simultaneously with the appearance of the pandemic and after the paralysis of world activity in all areas, Production values rose in such a way that the year 2021 marked a historical record for the Argentine harvest: US $ 13,500 million in exports.
Any unsuspecting person could believe that such a bonanza in the prices of products in a trend that seems sustained, must have spilled wealth in the most important component of the activity: the land factor. But it was not like that.
Another crack. Juan Jose Madero, president of the Argentine Chamber of Rural Real Estate (CAIR) shows that the price differences of the value of the hectare in the best areas (the “nucleus” in Argentina) is at most half of the value of the Illinois area, for example). This year, the gap was US $ 13,000 versus US $ 27,000 in the northern country. The difference is not in productivity but in costs, the exchange gap and, above all, the tax factor. “Argentine lands are on the world podium for productivity, along with the corn belt, Ukraine and Eastern Europe,” he emphasizes.. In Uruguay, the “AA” lands (departments of Soriano and Río Negro), oscillate in US $ 7,500, with a growth of more than 15% since last year. In Paraguay (Caaguazú area), the price is around US $ 3,500. Why is the sector going against its neighbors and world leaders? “We have a false dollar, there is a trap that prevents us from entering and withdrawing foreign currency; taxes are almost confiscatory. What we have is a huge handbrake. A horse with a short rein ”, emphasizes Madero.
The values, for this reason, are flat, after a fall, of between 10 and 15% in dollars. Josephine Jolly, analyst at the consulting firm FyO, estimates that, with the latest changes, depending on the crop and the area, their participation, on average, is 40% ”. In other words, within the producer’s cost equation, it has its own weight. “We started the 20/21 campaign with a downward view of commodity prices, which accelerated sales at the local level, mainly of cereals. Entering the harvest, the market reached maximum prices, which could not be fully taken, as many had sold much of it cheaply.or ”, he explains.
For the analyst, the difficulty that the sector is going through is that it is facing a real inflation of inputs for the next season and that decisively affects profitability. For example, in November urea, a key fertilizer, rose 7.2%, but glyphosate (used for soybeans), jumped 26%. “This factor, added to the fact that commodity prices had a decline in recent months, caused margins to suffer and although they are still good in dollars per hectare, profitability was affected”, he concludes.
The pandemic also brought logistical problems in international trade that misconfigured the world market for energy, the basic raw material for fertilizers and global transportation. Oil and natural gas reached their 7-year highs in October. There are closed fertilizer plants that did not reopen and the continuous flow of global supply could not be re-established..
Sale or rent. “The market presents an additional paradox: it is difficult to find a buyer, but rents are flying and are up 47% in dollars in the last year”Adds Madero. The explanation is simple: while a purchase-sale negotiation is made in dollar bills (or its equivalent), the rental is done in pesos, although indexed by the product value ”, he adds. In one case, the buyer must introduce dollars into the local circuit and in the other, on the contrary, it is a vacuum cleaner of pesos that today are left over in the economy. In some way, channeling pesified funds into agricultural production is looking for an exchange umbrella and anchoring to concrete real references. The demand to rent fields has multiplied (10% to 15% more in quintals of product than last season) and, in the opinion of the president of CAIR, there is a lot of unsatisfied demand. Livestock fields, meanwhile, also grew 10% measured in kilos of steer (which rose more than inflation and 50% in dollars).
The client. Who are those who invest in the sector today? In difficult times, you have to take a better look at those who want to go out of business. In a sector where the family business reigns supreme, there are many decisions that have to do with the “family cycle”: your children are no longer interested in dedicating themselves to the fields. A special type of seller also appeared, Madero says: the one who wants to realize their assets and settle outside the country.
Buyers are producers, of different kinds. If you are a neighbor, it is enlarged, if you are in another area, perhaps you want to grow as a producer, but it is convenient for you to diversify climate risk. And, of course, those who preferred to add a different asset to their investment portfolio. The investment scale is between US $ 2 and 6 million, but there are also interested parties of less than US $ 1 million, which are basically those who annex land to their stock.
The foreign investor, meanwhile, has almost disappeared, due to the exchange rate gap that makes the operation more expensive or difficult and the regulations that discourage foreigners from this market. This led to the fact that the most productive areas (Pampa Húmeda) only have between 2 and 3% outside the national tenure against almost 10% of areas that are less attractive for agriculture but are more linked to mining (Salta, Jujuy, San Juan, Mendoza and Santa Cruz).
The optimists in this business believe that Argentina’s comparative advantages, not only the quality of its land, will eventually prevail and the future must be positive. Above all, they highlight the great capacity for adaptation and innovation of the national agricultural producer who incorporated and even created application technologies on the frontier of knowledge. Now they are faced with a double challenge: living with unstable and unfriendly rules of the game and responding to the progressive concern about the environmental impact of the activity. It is what it touches.
