Wednesday, January 26, 2022

ECONOMY | 09-12-2019 13:42

Blow for Fernández as crop windfall slips away

President-elect needs all the help he can get to pull the country out of recession and make good on bond payments. But he faces a speed bump from the crop industry.

Alberto Fernández takes over as Argentina’s president on Tuesday with hopes of bolstering exports to spur growth and pay debts. But no sooner than the wheels start turning on his four-year term, he faces a speed bump from the crop industry, which accounts for more than a third of shipments.

Drought has ravaged the wheat and barley crop on the Pampas growing belt that rakes in key export revenues over the new-year period. Wheat is chiefly sold to Brazilian millers. Barley goes to Saudi Arabia for camel feed. And most of what is left to harvest on parched fields has already been traded by savvy farmers, meaning Fernández’s plan to grab his share by raising export taxes will be largely futile.

Take Claudio Sánchez, a grower in Frapal, Buenos Aires province. His wheat plants, spread across 4,000 hectares (about 10,000 acres), are expected to yield 40 percent less than last year and he’s already sold about 70 percent of the grain still in the ground to exporters in forward contracts. That means he pays the current export tax of nearly seven percent rather than the higher rate that’s expected under Fernández.

The drought has put prognosticators who were expecting a record wheat harvest on the back foot. At the Buenos Aires Grain Exchange, the forecast has ebbed 12 percent since the start of the season to 18.5 million metric tons.

That’s still a good crop, even placing Argentina ahead of southern-hemisphere rival Australia. But bigger would have been better for Fernández, who needs all the help he can get to pull the country out of recession and make good on bond payments. Wheat and barley exports will bring in just US$2.9 billion this season, according to Agustin Tejeda, chief economist at the Buenos Aires Exchange. Last season, they were worth closer to US$4 billion.

Dry weather is also posing a threat to Argentina’s biggest cash crops – soybeans and corn, which are being sown on the Pampas. Recent rains have restored some soil moisture, allowing farmers to get seeds in the ground. But concerns for the next few months, when the plants grow, linger.

Sanchez, who’s planted corn, says Frapal is suffering one of its five driest years since records began there in 1967. “It’s still very, very early but we’ll have to keep a close eye on the Argentina rainfall forecast,” Jacob Christy, a crop trader at Andersons Inc, said in a video posted online.

It’s not only wheat that’s being traded now to skirt a likely rise in export taxes. Sanchez has joined crowds of farmers who’ve both sold newly planted corn in forward contracts and priced stockpiles of last season’s grain.

As a result, 14.7 million tons of corn that haven’t even been collected are already listed on Argentina’s crop exports register, three-and-a-half times more than at the same stage last year. Three quarters of the past harvest is also listed, compared with just 58 percent a year ago.

The rush to price leftover soybeans in the past few weeks is squeezing traders, with Vicentin SAIC, Argentina’s biggest exporter of soy meal and oil, missing US$350 million in payments to farmers.

On Monday, soybean futures in Chicago rose as much as 0.9 percent to US$8.9775 a bushel.

Looking ahead, growers warn that if Fernández moves too aggressively on export taxes to increase fiscal revenues, it will scupper his plan to bolster shipments.

Likewise, there are fears that interventionist strategies used to tame inflation under the presidency of Cristina Fernández de Kirchner, now vice president-elect, will make a comeback and prevail over the need for export dollars. Those strategies included curbing food sales abroad and regulating prices at home.

“Don’t kill the goose that lays the golden egg,” said Ignacio Philipp, a farmer in Bahía Blanca, Buenos Aires Province. “Feed it.”

by Jonathan Gilbert, Bloomberg


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