Argentina’s row-crop production on the brink

Grain Brokers Australia, January 17, 2023

Drought has decimated production prospects for this soybean crop in Argentina. Photo: @pauljose01

ARGENTINA may hold the highly coveted football World Cup, but the country’s drought situation appears to be going from bad to worse. The conditions are so dire that row-crop production estimates are getting slashed on a weekly basis, and winter-crop output is the nation’s worst since the harvest failure of 2015.

With the drought now engulfing more than half of the country, weather forecasters are calling it the worst in 60 years, and relief for Argentina’s farmers may still be months away. Agricultural output has been struggling under the influence of the La Niña weather phenomenon for three years, but the past nine months have been unusually dry.

According to a Buenos Aires Grain Exchange (BAGE) update released last week, relief is on its way, but it could be March before rainfall picks up enough to significantly improve soil-moisture reserves and moderate the heatwave conditions. Some rain is expected over the next couple of weeks, but not nearly enough to improve soil-moisture reserves and reduce summer-crop stress.

With the winter-crop harvest coming to a close, BAGE now expects wheat production to fall to 12.4 million tonnes (Mt), down from a record 22.4Mt in the 2021-22 season. While the planted area was 9pc higher at 6.7 million hectares (Mha), the crop yield was almost 35pc lower year on year. The Rosario Grain Exchange (RGE) is even more pessimistic, pegging wheat production at only 11.5Mt and last week’s USDA number was 12.5Mt.

The barley story is very similar, with production down from 27pc from 5.2Mt to 3.8Mt. The planted area increased year on year by 8.3pc to 1.3Mha, but the crop yield was down by more than 34pc compared to the 2021-22 harvest. The USDA was unmoved in last week’s update, leaving barley production at 4.2Mt.

Dry delays plant

The dry weather conditions and parched soils have significantly delayed the planting of the 2022-23 corn and soybean crops. BAGE said last week that it could reduce this season’s row-crop production estimates by as much as 25pc if there was no rainfall relief across the summer-cropping regions very soon.

Approximately 14.8Mha of soybeans had been planted as of January 5, with the seeding program winding down in the next couple of weeks. Planting of the early crop should have been completed in December, but there is a much higher proportion of late-planted soybeans this year, which traditionally yield less than the early-planted crop.

In last week’s crop update, BAGE called the soybean crop 88pc planted against 72pc the previous week, 98pc at the same stage in 2021-22 and a five-year average of 97pc. The crop condition is one of the worst in the past 40 years, with the poor-to-very poor proportion making a massive jump to 56pc compared to 38pc the previous week and 29pc at the same time last year. The good-to-excellent category captured only 4pc of the crop area compared to 8pc a week earlier and 33pc in early January 2022.

Interestingly, the current soil-moisture conditions are not that dissimilar to this time last year, but it is the dramatic decline over the New Year period and the lack of meaningful rain in the forecast that has most people concerned. As of January 12, 66pc of the soybean area had poor to dry root-zone moisture reserves compared to 43pc a week earlier and 60pc at the same time in 2022.

BAGE lowered its soybean-harvest estimate to 41Mt last week but has offered a dual scenario production update, both of which are much lower than its December crop estimate of 48Mt. Under the first scenario, crop-saving rains return by February and output recovers to 44.5Mt. The second is a worst-case scenario outlook where the drought continues unabated, and the harvest could be as low as 35.5Mt, which would make it the worst since 2008.

However, RGE went the whole hog, slashing its estimate by almost 25pc from 49Mt to 37Mt, believing too much damage has been done to see a wholesale production recovery. True to form, the USDA took the conservative route, trimming 4Mt off its estimate to land on 45.5Mt in its January update.

Small crop has economic impact

The prospect of the smallest soybean crop since 2008 could wipe US$11.6 billion off the value of grain exports and 1.8pc off Argentina’s GDP this year, exacerbating the country’s financial woes. Argentina is the world’s biggest exporter of soybean meal and soy oil, and prices of both have rallied significantly, with Chicago soybean meal futures touching a nine-month high on Thursday of last week.

Some processors are so concerned about old-crop supply in front of the next harvest that they have begun securing oilseed supplies from Brazil  which, in stark contrast, is staring down the barrel of a record harvest. Rumours say at least six cargoes have traded. They can thank the “soybean dollar” for that, as it seems Argentina bought more export demand than expected, pushing whole soybean shipments to a record 22Mt in the four months to December 31.

The corn-seeding program is normally winding down by now, but this season it continues with every shower of rain that sweeps across the Pampas. As of January 5, approximately 5.1Mha of corn had been planted, and like beans, there will be a much higher than usual proportion of late-planted corn. BAGE has trimmed 200,000ha off its planted area forecast, which now sits at 7.1Mha compared to 7.7Mha last season. RGE has dropped its area from 7.9Mha to 7.3Mha.

According to BAGE, 83pc of the crop was in the ground as of January 12, compared to 86pc last year and a five-year average of 89pc. But crop conditions are deteriorating quickly, with the exchange rating 47pc of the crop in the poor to very poor category. That compares to 32pc just a week earlier and 36pc at the same time last year. Only 7pc of the crop made the good-to-excellent category, against 13pc on January 5 and 23pc last year. Soil-moisture reserves are similar to beans, with 60pc of the crop area rated poor to dry compared to 53pc in early 2022, but up dramatically on the 39pc rating on January 5.

Production-wise, BAGE shrunk the corn crop from 50Mt last month to 41Mt under the optimistic February rain scenario, and 37.8Mt under the drought continues scenario, the latter closing in on the 2008 disaster. RGE slashed its forecast from 55Mt to 45Mt, but the USDA tiptoed around the issue, lopping only 3Mt to land on 52Mt.

While the market appears to be ignoring Argentina’s growing corn-production issue and banking on Brazil to fill the soybean export gap, the potential impact on global trade flows is dramatic. But that will pale into insignificance compared to financial ramifications for an economy that has suffered at the hands of Peronist bungling for years.



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