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Speakers give a review of Argentina’s agricultural economy

Argentinian economists Emilce Terre’ and Tomas Rodriguez Zurro presented insight into the agricultural economy in Argentina during a webinar for the Chicago Farmers’ January 10^th meeting. Similar to the United States, the major factors that impact agriculture in that South American country are government policies, weather, and transportation costs. 

Ms. Terre’, chief economist of the Research Department of Rosario, Argentina’s Board of Trade, related that the central farm belt of Argentina produces soybeans, corn, and wheat. She noted that the gross income return for farmers in November 2021 was:

• 1^st soybean crop-$1.252/hectare
• 1^st corn crop-$1.935/hectare
• Wheat-$0.986/hectare
• 2^nd soybean crop-$0.939/hectare
• Double crop-$1.925/hectare

She noted that the rise in fertilizer prices had impacted production and freight costs are high. Ms. Terre’ related that 90 percent of production is moved by trucks, which must travel very long distances. “Transportation is one of the main costs producers must deal with when trading crops,” she said. Additionally, the tax burden on land owners is quite high with a total tax burden of 159 percent.

Ms. Terre’ said that landowners are expecting a record production in 2022. The winter crops were 99 percent harvested last week. Wheat had a record production with 122 million bushels harvested. Currently, the soybean and corn crops are in “grave danger” due to weather.

She went on to say that the early seeded corn and soybeans are suffering more than the later seeded crops. The summer crops of soybean and corn are entering the critical development phase and there is very low moisture in the soil and record high temperatures of 40 degrees Celsius (104 degrees Fahrenheit) forecast for the coming days. “This is the second consecutive La Nina we have experienced and it will persist until March,” said Ms. Terre’. “We have a very low level of water below the soil surface and we have a lack of rain.”

Ms. Terre’ discussed the types of contracts used in Argentina:

• Spot sales: delivery within 30 days and payment within 72 hours
• Forward sales: price is fixed, but delivery will occur at a future time, usually when harvested
• Advance payment and future delivery: mostly used for “minor” crops such as barley, also known as production contract
• Deferred-pricing sales: delivery may take place immediately or be deferred, but price will be settled sometime in the future, according to certain rules
• Swap: exchange of grains for supplies (fertilizers, seeds, machinery, etc.)

Deferred-pricing is the major difference between Argentina contracts and U.S. contracts, she pointed out. These sales are up from 49 percent to 76 percent because producers are expecting prices to rise in the near future. She noted that 41 percent of soybeans have been sold through deferred-price sales.

Ms. Terre’ said that crop rotation is used with wheat and soybeans one year and then corn the next year. She said the corn market is “more interesting.”

In response to questions, Ms. Terre’ said that China is the main importer for Argentinian grain. Also, grain follows the value of the dollar. “When farmers expect the dollar to rise, they might prefer not to sell all their crops at once,” she said.

In further discussion of the deferred-pricing contract, Mr. Rodriguez-Zurro, market analyst of the Research Department of the Rosario Board of Trade, explained that the grain is sold, a date is set for delivery, but a price is not set until later in the year. “Farmers usually opt for this contract when they expect beneficial increases,” he said.

At the same time, Ms. Terre’ pointed out, the famers might not go too far out if they are expecting fertilizer or seed prices to increase because they will need the funds to purchase these materials at the lower prices.

Mr. Rodriguez-Zurro said a record high production is expected and while there is a decrease in domestic consumption, there is an increase in exports. He said that Argentina is expecting to get record high dollars for its crops.

Regarding agricultural policy, the two main tools that regulate agricultural are export taxes and export quotas, which change with administrations.

The current export tax rates are:

• Soybean, 33 percent
• Soybean meal, 31 percent
• Soybean oil, 31 percent
• Wheat, 12 percent
• Corn, 12 percent
• Sunflower seed, 5 percent
• Sunflower oil, 7 percent
• Su8nflower meal, 5 percent
• Barley, 12 percent
• Sorghum, 12 percent

Export quotas, which vary over the years, are in place to control the exports. “Argentina does not want the local producers to run out of grain for Argentinians,” said Mr. Rodriguez Zurro. “Argentina’s inflation is very high and there must be enough grain for the domestic market to help keep local prices low. While inflation is at 50 percent, wages are low.”

He noted that when the government changed in 2016, the export quotas were lifted, but in 2019 there was a new government and the quotas were reinstated.

Some of the problems for Argentina agriculture that Mr. Rodriguez Zurro sees going forward include:

• Transportation costs, which increased from 2020 to 2021 by 55 percent
• Weather, the two consecutive years of La Nina have caused low water levels and a drop in the Parana River, an important waterway for shipment of crops
• Persistent changes in the export tax rates, which affects stability
• The increase in Argentina’s exchange rate gap
• Lack of an institutional framework to boost production and generate incentives for innovation

In response to a question about inflation, Ms. Terre’ said that Argentina was unable to meet its monetary commitments to the EMF and others. As a result, the government has printed a lot of money, which translates into more inflation.

Regarding the effects of Covid, Mr. Rodriguez Zurro said that Argentina currently is experiencing record cases. In the first wave, the government had strong restrictions; however, the economy suffered, but the vaccination rate was good. Now there are fairly few restrictions. Ms. Terre’ noted that the country is not seeing an uptick in deaths related to Covid.