A historic drought has severely cut the size of this year’s crop in Argentina, especially soybeans, and there are other headwinds for agriculture, including runaway inflation, an export tax and deflation of their currency, the peso, at play.
The market has been watching Argentina’s crop shrink throughout the growing season, which has supported U.S. prices, especially soybean meal. The Buenos Aires Grain Exchange pegs corn production at 36 million tons and it just lowered the soybean crop estimate another 1.5 million to 22.5 million metric tons.
The cut came as harvest has progressed and yields have been coming in even lower than expected. Market analysts there believe the final crop will be even lower than current estimates and less than half of normal. This makes it one of the smallest crops in nearly 25 years.
Sol Arcidiacono, head of the Latin American Grain Desk with Hedge Point Global Markets, says: “We are going to have a cut in production of 50% considering when we were seeding last November December. I think we’re going to be close to 20 million tons. This is really low. I have been in this industry for 20 years and I have never seen such a small crop.”
She says this will result in the No. 1 soybean meal exporting country in the world having to import around 10 million metric tons of soybeans just to keep their processors in business.
“It is going to be a challenging this year.” Arcidiacono says. “Argentina has crushing capacity of 60 million tons, and we are going to have a crop of almost 22 to 23. There’s going to be a big gap we will have to try to fill with imports.”
At the same time, the ag businesses and farmers in Argentina are also facing some of the highest inflation in history at more than 100%. This is why farmers there have been reluctant to sell their soybeans because they are holding the crop as a hedge against inflation.
As a result, the Argentina government instituted a soy peso program or preferential exchange rate to boost soybean exports. The first program in September generated around 7 million tons of soybean sales in a month, while farmers have only sold 1 million this round. The program lasts until May 31.
