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Argentina – strong soya sector
Last year, Argentina continued to dominate world exports of soyabean products, according to analysts Photo: Adobe Stock
The oilseed sector in Argentina has risen above a number of recent challenges to emerge with strong exports of soyabean products Gill Langham
Argentina has faced a number of recent challenges including a recession exacerbated by the COVID-19 pandemic, surging inflation and a month-long industrial labour dispute.
Other issues include dry weather affecting crop outcomes and low water levels on the Paraná River, the South American country’s main transportation route for grain cargo ships.
However, with pent-up demand and high export prices, the sector has emerged in a buoyant position, according to a report by the United States Department of Agriculture (USDA).
The Global Agricultural Information Network (GAIN) Oilseeds and Products Annual published on 15 April 2021 said that agricultural exports were helping to replenish the country’s foreign currency reserves and support the value of the Argentine peso.
A report published in January by the country’s CIARA-CEC grains exporters and oilseed crushing chamber found that Argentina exported US$32.8bn in grains and their derivatives last year, which represented a record figure this century. In December alone, the sector exported US$2.68bn in grains and derivatives.
“Last year was positive for Argentine exports of the oilseed cereal complex in terms of international values and volumes reaching a historical record,” CIARA-CEC president and chairman Gustavo Idigoras says.
“However, it was not positive in terms of margins given that the strong decline in Paraná River flows – plus the uncertainties in the currency exchange regime in Argentina together with high inflation – significantly reduced the profits of exporting companies.”
Strong products
Last year, Argentina continued to dominate world exports of soyabean products, according to analysts.
Soyabean and product exports are particularly important to the country, as the government levies a 33% export tax on whole beans and a 31% tax on soyabean meal and oil, according to the GAIN report. These taxes provided more than US$4bn in revenue to the government in 2020.
As well as being the world’s leading exporter of soya meal for animal feed, Argentina is also an important supplier of soyabeans, soyabean oil, sunflower seeds and other crops.
“While Argentina is a relatively modest exporter of soyabeans, it has long been established as the world’s leading exporter of soyabean products to a range of markets across different regions,” Darren Cooper, a senior economist at the International Grains Council (IGC), says.
For soyabean oil, shipments by Argentina in 2020/21 (October/ September) totalled 30.6M tonnes, he says, while those by neighbouring Brazil and Paraguay amounted to 16.7M tonnes and 1.9M tonnes respectively.
Argentina also dominated in the soya meal sector with exports in 2020/21 totalling 30.6M tonnes, while those by Brazil and Paraguay amounted to 16.7M tonnes and 1.9M tonnes, respectively.
In contrast, in the same international trade year, soyabean exports by Argentina totalled 5.4M tonnes, while Brazil shipped 81.7M tonnes and Paraguayan exports stood at 6.4M tonnes.
“Each country has different strategies,” Idigoras says. “Brazil is today a strong global player in soyabeans, while Paraguay continues to seek to grow in production and has a soyabean export chain closely linked to Argentine milling. Uruguay is also an exporter of soyabeans while Argentina favours the export of processed soyabean products.”
Soyabean consumption in the current marketing year is projected at 42M tonnes, a year-on-year increase of 1% or 0.5M tonnes, as the global economy continues to recover from the COVID-19 pandemic and demand for soya products rises, according to the GAIN report. Soya meal production is projected to rise slightly at 31.7M tonnes and soya oil at 8.4M tonnes.
Argentina is also a major producer of sunflowerseeds and sunflower oil. In the current marketing year, sunflowerseed exports are projected at 190,000 tonnes, according to the GAIN report, an increase of 40,000 tonnes – or 26% – on the previous year’s forecast.
Sunflower oil exports are projected at 550,000 tonnes – a reduction of 90,000 tonnes, or 13%, due to improved northern hemisphere production leading to a reduction in demand for Argentine oil.
Sunflower meal is projected at 640,000 tonnes, a drop of 60,000 tonnes or 8%.
The report projects sunflower hectarage to recover to 1.7M ha – an increase of 305,000ha or 22% on the previous year – and sunflowerseed production to rise to 3.4M tonnes in the current marketing year, a year-on-year increase of 750,000 tonnes.
“Sunflower oil exports are in a positive moment due to an improvement in the harvest in Argentina as well as favourable prices internationally,” Idigoras says.
“Argentina is looking to resume international positioning, especially in countries such as India or China.”
Peanut and its products are also one of the country’s export commodities.
For the current crop year, the GAIN report forecasts peanut plantings to remain level at 350,000ha and production to rise slightly to 1.35M tonnes from an estimated 1.3M tonnes the previous year.
“For peanut oil, Argentina remains a strong player in the world market, after India. The main market is the EU but China is growing and increased its imports last year,” Idigoras says.
“International prices are also on a firm upward trend, due to Chinese purchases.”
Room for expansion in peanut area is currently limited by the processing capacity of the existing industry, according to the GAIN report.
Underlying issues
Although the trends seem all positive on the surface, Argentina is facing a number of underlying issues which affect the oilseeds sector.
“The Argentine oilseed industry is being affected by a stagnation of soyabean production in the country that has been going on for more than 10 years and that has led to levels of above 50% of idle capacity of soyabean and sunflower crushing plants,” Idigoras said.
“Macroeconomic instability in Argentina without access to local financing are critical aspects to take into account, along with logistical problems in relation to the u
u Paraná River and labour union conflicts.”
The parched Paraná River has been forcing exporters to reduce cargo sizes.
About 80% of the country’s agricultural exports are shipped from the agricultural port hubs of Rosario on the Paraná, according to a Reuters report.
However, the shallowness of the Paraná threatened to cost Argentina’s grain farmers and exporters almost US$315M over a six-month period to last August, the Rosario grains exchange was reported by Reuters as saying.
“The downstream of the Paraná River has generated unforeseen incremental costs for months and has reduced the load of ships that must go to Brazilian ports or to ports in southern Argentina that are 800km from Rosario,” Idigoras says.
However, despite the transport difficulties, exports have been “fairly impressive” in the early part of this year, according to IGC’s Cooper.
Other general transportation issues have also caused logistical problems, Idigoras says.
“Logistics have been the main bottleneck in the last two years, firstly because of the effects of sanitary restrictions on maritime and land transport due to COVID-19 but, above all, because of the sharp increase in costs of international maritime freight that impact countries like Argentina that are far from the buyer markets.”
Effects of inflation
Surging inflation is also having an effect on the sector, according to industry analysts.
“High inflation has a broad impact on production and exports. Firstly, it increases all production costs due to the rise on prices of inputs such as fertilisers, seed, and agrochemicals,” Idigoras explains.
“The costs of harvesting and transportation to ports or grain handlers also rise and, finally, labour costs increase due to wage increases.
“If the increase in inflation is not pari passu with the rate of devaluation, the industry automatically loses margins.”
While rising costs associated with energy and inputs, such as fertilisers, are a concern for farmers, Cooper says that in the case of South America, final crop outcomes will not be shaped so much by fertiliser application rates but through the impact that hot, dry weather has on developing fields.
Meanwhile, the government and the oilseed industry also reached an agreement last January to create a trust fund to subsidise domestic oil
consumption in a bid to combat food inflation. The trust aims to collect US$190M/year to subside up to 29M litres of bottled vegetable oil for the domestic market, according to the GAIN report.
Main markets
China has typically been the main destination for soyabean exports, according to the IGC’s Cooper, while soya meal exports to the country are small, and, in some years, zero, he says.
“This is because the bulk of China’s needs are met via imports of soyabeans – from the USA and Brazil, primarily, but also Argentina – for domestic processing,” he explains.
While China has been a strong importer of soyabean oil, Idigoras says the country has recently introduced technical and administrative barriers to limit imports.
“Argentina had to look for new markets for the oil and, today, India is the big customer.”
Meanwhile, China and Argentina have pledged to deepen strategic cooperation on trade, currency and the infrastructurefocused Belt and Road initiative, according to a 6 February Reuters report. President Xi Jinping and Alberto Fernandez have agreed on a five-year plan for agricultural cooperation, identifying key areas to grow and diversify trade and investment in the sector.
As well as being a major buyer of Argentine soyabeans – and beef – Beijing also has a major currency swap deal with the country, according to the report.
China said it would help Argentina expand its exports and upgrade its industries, China’s foreign ministry quoted Xi as saying.
Price outlook
International prices have been supported recently by the potential impact of hot, dry conditions in key soyabean areas of both Argentina and Brazil, Cooper explains.
“While Chicago soyabean futures have been buoyed by dwindling prospects in Brazil, the world’s dominant soyabean exporter, this has also fed into higher prices in Argentina,” he adds. “We have also witnessed strong gains in international soya meal prices and this is, in large part, directly linked to concerns about the impact of a smaller soyabean crop in Argentina.”
Against this backdrop, Cooper says there are grounds for expecting prices for soyabeans and soya meal to remain elevated moving forward.
Cooper also notes that in early February, the IGC saw a “notable pickup in demand” for US soyabean supplies given the prospects of dwindling crop outcomes in Argentina and Brazil.
A number of factors have to be taken into account when making oilseed price forecasts, according to Idigoras.
“The climate in the producing areas will again be a strong driver, but also the conflicts between countries, monetary policies and bioenergy usage,” he says.
Looking ahead
The soyabean harvest in Argentina – and neighbouring Brazil – is expected to be larger this year, but poor growing conditions will dampen the prospect of a bumper crop, according to a report by Germany’s Union for the Promotion of Oil and Protein Plants (UFOP) on 10 February.
A GAIN report from the USDA’s Foreign Agricultural Service (FAS) reported by World Grain on 2 March revised the country’s projected soyabean production in the 2021/22 marketing year from 45M tonnes to 41M tonnes as the result of dry weather.
If the FAS forecast is correct, it would be the country’s smallest soyabean crop since 2017/18, when 37.8M tonnes were harvested, the report says, although Argentina would still rank as the world’s third largest soyabean producer.
In terms of exports of soyabeans and soyabean products, in particular, the outlook for Argentina’s oilseeds sector will ultimately depend on the 2021/22 harvest outcome, according to Cooper, and the size of the exportable surplus.
“There is no doubt that crops in Argentina and, indeed Brazil, will be smaller this year compared to the prior season,” he says.
However, Idigoras is confident the country has the ability to continue competing with volume and quality in the oilseed market and to face local and international challenges. ●
