“What saves us is a good harvest” was the phrase with which a society that believed itself doomed to success backed up its optimism: despite all the messes in terms of economic policy and the world’s conspiracy against Argentina, finally fertility from the ground facilitated recovery. But everything changes and, between the already tangible climate change and the worsening of the economic crisis, it is presented in its 2023 version with a final characteristic: the drought will also be for dollars.
The rain. Until the weekend of January 20, the outlook for agribusiness was bleak. Going through the third consecutive Niña cycle, which is characterized by lower-than-average rainfall that worsens each year because the soil progressively dries up, “the current drought is unprecedented in terms of extension, duration, and severity” sentence Ariel Angelileader of the R&D Unit of CREATES. According to the estimates of the entity, the decrease in production of the harvest of winter crops (mainly wheat and barley), it is from 32 to 37%, which implies a loss equivalent to US$3.3 billion. In turn, in the current summer crop campaign -soybean, corn, sunflower- the projected decline is estimated at 22%, 17% and 13% respectively, which valued implies a loss of US$9,650 million..
Another flank that worsened was that of beef cattle, in which the drought causes less growth of grasslands and pastures, reducing the forage supply. Starting at the end of August, most of the country entered a forage crisis that worsened. “The first direct impact will translate into a loss of around US$200-300 million due to lower calf production (5-7%), although due to the length of the livestock cycle and the dynamics of the sector, this impact will be greater and will spread in time, over the next few years”foresees Mercedes Vasallor, Responsible for Fodder Monitoring of the Livestock Area of CREA. The recent increase in meat in the farm market breaks the cycle of relative value loss: meat increased by almost half the CPI during 2022. The end of the initial cycle of liquidations pushes the price to catch up with the rest and threatens, for its strong impact on the CPI to check the convergence of inflation to 4% per month for the second quarter and 3% for the third. Until now, 5% per month (80% per year) is here to stay as a floor for this year.
Global. The outlook seemed to ease over the weekend, when some rainfall even changed the production forecasts for this season. To dante romanor, Manager of Markets of FyO and teacher of the School of Agribusiness of the Austral University, they will stabilize late corn and second soybeans, but the damage to early corn and first soybeans cannot be reversed. “The focus of the market had been placed in recent weeks on the lack of rain in Argentina, southern Brazil, Uruguay and Paraguay, but mainly on our country. The quality of corn and soybean crops fell to minimum levels and the main analysts have already made production cuts. But the rains finally arrived, and the forecasts mark another front for the end of the month”, he emphasizes.
Romano observes that a marked drop is expected in the international market, but less profound in the local market, since in any case “we will be with a lower production”. Precisely, the prices that have been sustained since mid-2021, when the pandemic emerged and driven by the strong expansion of meat consumption in Asia, international demand no longer validates current price levels, with negative signs from China, where the price of hogs continues to fall.
For the economist and professor of UCEMA Federico P. VacalebreFor the moment, in the United States, it seems that disinflation is underway even if the Fed is telling us otherwise, especially given the macroeconomic forecasts that it published in the FOMC (monetary policy committee) on December 14. “It is sensible not to rule out strong slowdowns in inflation in 2023, although it must also be taken into account that it is a slow process”risks in a horizon in which a stagnant economy, positive rates and declining inflation are projected.
The specialist in international trade also marks that direction Marcelo Elizondo. “By 2023, it is expected that the prices of the products that Argentina exports will not only not increase by 17% like last year, but will probably drop between 4% and 5%, partly due to the slowdown in the global economy and also that they will make imports in Latin America, for example, they will fall 2%”, he notes. The issue is not minor for an economy like Argentina that continues to depend on two thirds of exports of agricultural origin. Last year the almost US$88,000 million that, due to the combination of lower production and lower prices, would decrease between US$7,000 and US$9,000 million.
“The only relevant Argentine trade balance is in the goods market, everything else is net zero or even negative,” he analyzes.
In the foreign exchange market, the problem is that exports are the only genuine resource to obtain dollars (Argentina does not have capital inflows but rather outflows and a deficit in the balance of services) and that generates the desperation of the Government for look for them. This is how initiatives such as the swap with China, private financing if successful, the Soybean 2 and 3 plans and also now the Brazilian financing project for imports from that country this year are framed. “This would decompress the exchange market, but at the same time it generates a liability that must be addressed next year, with the companies that would assume an exchange risk.”, details Elizondo.
Romano maintains that, in this eagerness for shortcuts, the soybean dollar broke the grain market. “When the first version was produced in September, it was taken as an exception. But with the December version, we came to the conclusion that it has become a new weapon for the Government to generate revenue and a greater amount of foreign currency.”, he concludes.
Brazil. The last attempt in that line was the most publicized proposal that was founded, of a common currency with our “biggest” neighbor. In reality, for Elizondo, it is only a search for a monetary unit for bilateral economic exchange. “It is a mechanism for hedging balances through a currency (actually a nomenclature to operate with local currencies). But with many doubts about its eventual implementation (who is going to issue, what each company in each country will receive, etc.), which in any case would not be something quick due to the operational complexities (how banks used to doing so in dollars will operate), macroeconomic (how much is going to be issued and who is going to decide it; at what price, etc.). In this field there is much to be done and the lack of coordination of macro policies between both partners would threaten the deepening of any economic policy, such as the common currency or the consistency of the money supply.
In the midst of these trial balloons in an election year, there is a protagonist who watches these attempts pass: the producer. Stephen Barelli, leader of CREA’s Economic Area, understands that institutional and climate risks only represent two of the main risks that agricultural companies in Argentina are managing in this campaign. “The first implies not only an impact in the short term, but the different government measures also affect the sustainability of companies in the medium and long term”, appreciate. Solutions for a sector, but not for their companies?
