Argentina's Agribusiness Faces up to the Coronavirus Crisis
Argentina is the world’s leading soymeal and soy oil exporter, and also ranks among the world's top exporters of soybeans (third), corn (third), and beef (fourth). Its capacity to maintain production and exports therefore has a key influence on the global markets for these commodities. This brief article highlights the measures being taken by the government and by commercial agribusiness players in the country's grain & oilseed and beef sectors to address operational challenges associated with the coronavirus pandemic.
Argentina was actually one of the first countries in South America to announce a nationwide mandatory quarantine in order to slow the spread of coronavirus. The initial measure was valid from March 20 until the end of March 2020, but has since been extended twice, most recently to April 26.
From the beginning, activities related to the food and agribusiness sector, including transportation, were classified as essential and hence not subject to lockdown measures, permitting the movement of grain cargoes to ports and to internal destinations. Initial problems with restrictions on the circulation of trucks imposed at the municipal and state levels, which temporarily interrupted the flow of grains to internal users and to the ports, were resolved via a federal decree on March 25, which clarified transportation regulation during the quarantine period.
The immediate impact of the turbulence across global markets was mainly the increase in the cost of capital. As a result, lenders are using a more selective approach, prioritizing the support of existing clients. Meanwhile, growers are generally not facing liquidity constraints because most of them brought forward their sales of winter crops late last year before export taxes were raised. Additionally, the corn harvest is taking place at this very moment, and a significant proportion of the crop has already been pre-sold by farmers (44% of the projected 2019/20 season production vs. 31% in the same period last year).
In response to the crisis, the government has made finance available at subsidized interest rates for small- and medium-sized companies, which includes farmers with an annual income of up to ARS 548m (USD 8.3m). The total amount of financing across all sectors is estimated at around ARS 66bn (USD 1.0bn), at an interest rate of 24% in ARS for 270/360 days. Meanwhile, the current expectations for inflation this year are around 35% to 40%, with the ARS/USD exchange rate expected to weaken by 20%.
Grains and Oilseeds
With harvesting getting into full swing, Argentine farmers have adopted additional health and safety measures related to the coronavirus, including the use of alcohol gel and gloves/face masks for machinery operators. In response to the heightened potential for transportation problems, many farmers opted to purchase additional silo bags, expanding their on-farm storage capacity in order to better ride out any possible supply chain disruptions between the field and the ports.
This year's weather has influenced both soybean output and logistics. A drought in February reduced soybean output expectations from 55m metric tons to 49.5m metric tons. On the other hand, it didn’t impact corn production (given the advanced stage of development of the early-cycle fields at that time), which is expected to reach 50m metric tons, the second largest on record. For logistics, record-low water levels on the Paraná river have increased the costs of transporting exportable goods. Vessels cannot load as much as they would at river ports in a normal year, and can only top up to a full load once they reach coastal ports.
For the soybean crushers, throughput generally peaks from April onwards, as the harvest advances. Companies are implementing various health measures for workers, including distancing at workstations and distribution of security equipment to employees and truck drivers. Preventive measures have also been implemented in the ports, especially with regard to inbound ships arriving from countries with high numbers of coronavirus cases.
At the time of writing, all Argentine grain ports and crushing plants are open and operating normally. However, with the additional measures and safety checks in place at both industrial facilities and ports, it may be difficult for operations to flow at full capacity. On the other hand, there could be reduced demand this year, especially for soymeal, from importers in Southeast Asia, as indicated in a recent Rabobank report from the region. This suggests that an alternative for Argentina in 2020 might be to export more soybean than usual. Indeed, evidence suggests that this is already happening, with 5.3m metric tons of soybeans booked for shipment in Q2 2020, 51% up from the same period last year.
Argentina´s beef exports reached a new record in 2019, with the shipment of around 840,000 metric tons, generating revenue of approximately USD 3bn. Global animal protein trade soared last year as a consequence of the African swine fever outbreak in China – the Chinese market accounted for 75% of Argentina´s beef exports. The halt in trade flows as the coronavirus outbreak emerged in mid-December 2019 reduced sales in the first months of 2020. In January 2020, there was a 35% reduction in shipments in relation to the previous month, according to sector sources, while February saw a further 30% decline. In recent weeks, there has been an upturn in Chinese import demand.
To date, output has not been affected. Cattle production has benefited from good rainfall volumes during the summer. Slaughter operations continue at a normal pace, with the adoption of preventive measures (sharing information on forms of contagion and prevention; screening of workers; increased frequency of cleaning/sanitizing).
Regarding exports, European beef purchases, particularly for high-value-added cuts included in Hilton and 481 quotas, have halted since March as the coronavirus crisis impacted the EU market. Even with demand for kosher cuts, particularly from Israel and the US, remaining firm, this temporary reduction in export shipments together with government measures – increased export taxes and the creation of a system to monitor the weekly variation in meat prices – has boosted supplies of beef in the local market, while the impact of the quarantine measures on domestic consumption is reported to be limited.
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