Argentine Corn Falls Second to Soy
With the agricultural sector comprising 10.9 percent of Argentina’s gross domestic product (GDP), compared to Brazil’s 6.2 percent, corn production and trade remains central to the country’s economic prosperity. Elimination of longstanding export taxes ranging from 15 to 25 percent by President Macri in late 2015 spurred massive plantings of corn across the provinces of Buenos Aires, Córdoba, and Santa Fe. Argentine farmers planted 12.11 million acres in 2017, up from 6.92 million acres a decade earlier. In 2017, Argentine corn production reached 41 million tonnes, an increase from 29.5 million tonnes in 2016. Implementation of President Macri’s free market reforms coupled with early adoption of GM crop technologies in 1996 have propelled Argentina to the world’s second largest exporter of corn. The USDA Agricultural Resource Management Survey reports that conventional corn had an average yield of 3.4 tonnes per acre while glyphosate and glufosinate tolerant GM seeds with insect resistance to corn borer, corn rootworm, and corn earthworm had an average yield of 4.34 tonnes per acre. Yet as global ending stocks balloon to 205.78 million tonnes drawing down the global price of corn, Argentine farmers may profit by planting more soybeans.
Soybeans Exemplify Argentine Recovery
With corn prices at historic lows, Argentine farmers are increasingly pivoting away from corn acreage to plant more soybeans. Production quantity of soybeans closely matched that of corn until 1998, when totals equalled 19.36 million tonnes and 19.50 million tonnes, respectively. Advancement in GM technologies and the rapid adoption of direct seeding in the “Pampas” region of Argentina began to widen the production gap between corn and soybeans. With the introduction of glyphosate-resistant soybeans farmers were able to reduce labor costs and allowed them to bring more farmland into production. Because glyphosate-resistant soybeans can withstand blanket field herbicide sprays, they survive and leave a bed of dead plant residues covering the soil. Modern tractor attachments can directly seed soybeans into these plant residues, a practice known as “no-till” farming. Touted as an environmentally friendly practice because of reduced soil erosion, water loss, and tractor passes in the field, no-till farming catalyzed the massive soybean expansion in the Pampas region. These developments led to soybean production eclipsing that of corn by an average 25.09 million tonnes between 2013 and 2017.
High relative protein content further benefits Argentine soybeans’ strategic position as a global export commodity. Adverse weather in summer 2017 reduced protein in the United States’ soybean crop resulting in a one-half to one percent reduction in normal protein content of 35 percent. With soybean meal protein a critical component of building muscle in animals, producers will increasingly look to new sources of high protein soybean meal available in Argentina and Brazil.
Two deleterious factors contribute to pessimism over Argentine soybean prospects. Recent droughts spanning the Buenos Aires, Córdoba, and Santa Fe provinces have forced farmers to lower their expectations. Global soybean futures price increases, along with a 17 percent devaluation of the Argentine peso since December 2017, are simply not enough to combat farmer losses.
Wheat Dependent on Neighboring Brazil
The case of Argentine wheat mirrors those of corn and soybeans in that export tariffs have dampened wheat prospects for decades prior to Macri’s reforms. After entering office in 2015, he eliminated the 23 percent export tariff, removed export limitations, and allowed for the devaluation of the Argentine peso. Planted area of wheat increased 4.9 million acres between the 2015/16 and 2016/17 growing seasons, largely due to agricultural policy liberalization.
As with every commodity, economic prospects for wheat are largely governed by international markets. The overwhelming influx of Russian wheat has put downward pressure on futures prices, and large wheat producing countries are scrambling to lock in fixed price trade agreements. As domestic demand for wheat remains low, Argentina can now vie for a top spot as a global wheat exporter. A period of export quotas between 2013 and 2014 shook Brazil’s confidence in a decades-long wheat trade relationship with Argentina. Brazil, in need of higher volumes of wheat imports, temporarily suspended the 10 percent wheat import tariff imposed on non-Mercosur countries like the US. Argentina only provided 27 percent of Brazil’s imports in 2014, but Argentine wheat export volumes have since recovered and provided 84 percent of Brazilian demand in 2017. President Macri is now presented with the task of continuing to rebuild and then maintaining Brazil’s faith in the reliability of Argentine wheat.
Beef Industry’s Slow Resurgence
Much like the others, Argentina’s beef industry struggles to recover from previous policies which hindered growth. A 15 percent beef export tariff, foot-and-mouth disease outbreaks, and a 2010 drought had crippled Argentina’s ability to remain an export powerhouse. In 2010, prospects seemed grim as stock quantities of cattle dropped below 50 million head, the lowest in a decade. Despite some 2017 weather concerns in the northwest area of the Buenos Aires province, the beef industry recovery is exemplified by increased investment in beef operations. A year-over-year export increase of 24.42 percent beef in 2017 warrants optimism. Competition between domestic and export demand caused by devaluation of the Argentine peso, compounded by a significant shortage of heavy steers, has Argentine beef export prices competing with drastically cheaper prices paid out in the domestic market.
With broad support across Argentina, President Macri’s liberalized trade policies may withstand the test of time. Prior to his administration, farmers had been plagued by decades of protectionist policies crippling trade commodities like corn, soybeans, wheat, and beef. The country again earned its place on the world stage, but it remains to be seen if recent progress will be undermined by a return to an era of high export tariffs and export quotas. Gro Intelligence provides subscribers with the tools to monitor developments out of Argentina by mapping global trade flows and anticipating how new and existing Argentine policies impact the prices and production of key agricultural commodities.