Home Commodities Third year of drought threatens Argentina’s grain exports

Third year of drought threatens Argentina’s grain exports

by SuperiorInvest

Walter Malfatto, 59, reclines in a chair at his ranch, arms folded as he stares out the window. Clouds are forming in the sky, but the hope of what they may bring is fading as the hours pass.

“It won’t rain today,” he says, resigned to another dry day. Malfatto and his wife farm 770 hectares in Bragado, 220 kilometers southwest of Buenos Aires in Argentina rural heart. “This time of year I should be up in the air tending to my crops,” he says, referring to his duster. But traffic is at a standstill. Combines and seeders are stored and the sprayer plane remains in the hangar.

“It’s been almost five months now that it hardly rains. Even my dad, who is 86, doesn’t remember anything like that.” He lost his entire wheat crop to the drought this year, he says, and fears a similar fate may befall the corn and soybeans he won’t plant until the rains come. “I won’t take any more chances.

In the regions of the Pampas, a vast, fertile region that is the lifeblood of Argentina agricultural economy, there are many cases like Malfatto. Several farmers have reported losing their crops due to the ongoing drought, which has lasted three years in a row, and this year’s crops have been particularly damaging. This threatens the country’s ability to supply global food markets and puts pressure on a fragile economy with low foreign reserves.

The country is a major player in the world food market. Last year, Argentine production accounted for 8 percent of global wheat exports, 18.5 percent of corn exports, and 40 percent of soybean oil and meal exports.

A burned wetland in the Paraná River Delta © Marcelo Manera/AFP/Getty Images

In the 2021-22 season, it produced 22.15 million tons of wheat, of which 16.25 million were exported, almost as much as Ukraine’s 18.8 million.

But the widespread effect of drought this season has led to a sharp reduction in estimates. The US Department of Agriculture now expects production of 15.5 million tons, while local exchanges forecast just 11.8 million tons.

“The sector is preparing for one of the worst harvest years in 20 years,” said Cristian Russo, an agronomist at the Rosario exchange. “Water supplies are like fuel for these crops, and we’re starting the harvest year with an empty tank.”

Earlier this year, President Alberto Fernández touted the country’s agribusiness exports as a potential solution to the world’s food problem. In many cases, however, low-quality wheat is thrown away or fed to animals while dry weather delays the planting of other critical crops.

“Argentina’s wheat harvest is now beyond recovery,” said Enrique Erize, who heads agricultural consultancy Nóvitas. “Now corn and soybeans are at stake. And the outlook is not good.”

The country has faced three consecutive years of unusually dry conditions associated with the triple effect of “La Niña”. The global climate pattern is defined by strong winds that drive warm Pacific Ocean water away from South America, resulting in drier and cooler weather.

Farmers are frustrated at the lost opportunity to serve global markets. “Those chances are gone,” said Fernando Rivara, who farms in Buenos Aires province and is president of the Federation of Grain Storage Companies.

In addition to drought, according to farmers, there is a shortage long-term economic policies to help export. Chief among their complaints are export duties of 12 percent on wheat and corn and 33 percent on soybeans. In addition, the 80 percent difference between the official exchange rate for exporters and the black market rate discourages investment, farmers say.

In September, the government opened a 26-day window for soybean producers to export stockpiles at a better rate, leading to massive sales. But this is now closed.

“With a good harvest, the government is trying to collect more export duties,” Rivara said. “But when farmers lose money, it’s like shouting in the middle of the desert.”

Finance Minister Sergio Massa last month announced a subsidy of up to 20,000 pesos per hectare for small soybean and corn producers to spend on seed and fertilizer. “We are facing an unprecedented drought with three years of lower water levels than we are used to,” he said. “That creates risks and obstacles for us.”

A government spokesman said that while officials “recognize that the measure alone is not enough”, they hope it will help farmers “invest more”.

A smaller wheat crop could be a problem for Argentina’s trade balance. According to Fernando Baer, ​​an economist at consultancy Quantum, there is a “high degree of fragility” in the economy as supplies run out. A combination of lower world prices and lower production will result in a wheat harvest worth $5.5 billion, down 36 percent from $8.6 billion the previous season.

Massa instituted import controls to protect precious dollars. The central bank does not report net international reserves, but private estimates put them at around $5 billion.

Economists fear that if the drought extends into Argentina’s summer, it could also affect the harvest.

“We have a long growing season for soybeans, but dry weather is delaying planting and could lead to less acreage,” said Paul Hughes, chief agricultural economist at S&P Global Commodity Insights. “The short crop, which reduces the amount of soybeans for Argentina to process, threatens world trade in these critical products.”

In Bragad, Malfatto picks up barley from the ground and the dry earth slips from his hands. He has 70 tons of soybean seeds ready. Some rains in the region in recent days have reignited hopes that the pace of sowing could soon pick up. “We believed this season would be an opportunity. But despite everything, I have more faith in the climate than in our own governments.

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