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Agroperspectives
Austral Agroperspectives It's a weekly newsletter that provides information and opinions about the behavior of supply, demand, and so on variables that influence price determination in agricultural and livestock markets.
The publication is directed by Dante Romano, professor at our Agribusiness and Food Center and a prestigious analyst in the sector.
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Agroperspective Report
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While China is easing some COVID restrictions and some purchases are appearing, import statistics remain poor. However, this week the oilseed complex began to trend upward in Chicago, driven by concerns about Argentina's drought, with increases particularly in soybean meal.
Locally, two issues dominate the market: the heat and insufficient rainfall, and the soybean dollar. Regarding the former, there has been some precipitation, but with very high temperatures and highly variable rainfall amounts. As for the latter, the trading volumes already seen have brought $1.000 billion into the country, but we are currently operating at half the level of the soybean dollar seen in September.
International demand is weak for both corn and soybeans, while there is a large supply of wheat from the Black Sea region. Now, the...
Discussion over the biodiesel mandate in the US. The EPA is proposing a lower target, which has put downward pressure on oil prices.
In our region, while Brazil is on track for record corn and soybean harvests, Argentina is facing a worrying drought. Adding to this is the local dynamic of the soybean dollar. Although the target is now lower, the market is noticeably slower to generate sales.
The international market is showing fluctuations: China is buying more, while the rise in COVID cases is causing concern. The weather in the US is improving for wheat, and planting is progressing well in Brazil.
In Argentina, the government, needing to bolster reserves and tax revenue, has launched a new version of the "soy dollar," this time at 230 pesos to the dollar compared to the official rate of 165. The soy dollar generates greater selling pressure, improves export margins, and this, in turn, drives down international prices.
Demand for soybeans in the international market is weak, while the extension of the agreement to ship grains to the world through the Black Sea is negatively impacting prices.
Brazil has a very good production outlook, and as a result, speculators in Chicago are actively selling grains.
Locally, the drought is delaying and complicating not only the marketing of wheat, but also that of early corn and soybeans. As a result, prices are holding steady because no one is selling. In this context, it is being suggested with increasing frequency that December will bring a new "soybean dollar" due to the need to increase reserves and fiscal resources in an election year.
While global stocks are rising, the macroeconomic situation is delicate with armed conflicts and measures taken by China in response to COVID that are paralyzing the economy.
However, locally there is concern about the drought, which has already wiped out about 10 million tons of wheat production, affected the planting of early corn, and the impact on late corn and soybeans remains to be seen.
The decline in the Central Bank's reserves, at a time of trade deficit and with expectations of low exports of the winter crop by year's end, is putting pressure on the government. Along with this, rumors of a new "soy dollar" have gained traction, aimed at encouraging producers who still have stockpiles to sell.
In the international market, the key story to watch is demand: the macroeconomic situation remains negative. The Federal Reserve continues to raise interest rates, and while financial markets have already priced this in, the real economy will feel the impact.
Meanwhile, the market is being supported by weather conditions. While Brazil is experiencing very favorable weather, Argentina is not only facing drought but also frost. This has already caused significant damage to wheat (which has fallen from 20 to 13 million tons), delayed the planting of early-season corn with uncertain yields, and is postponing soybean planting. All hopes are that soybean planting will be delayed to avoid the dry weather forecast for the short term, resulting in a large late-season corn crop, which might also be better protected from the dry weather than the early-season corn.
While US inflation suggests further interest rate hikes, the financial market performed better, easing pressure on commodities. The "humanitarian corridor" agreement allowing Ukraine to continue shipping corn, wheat, and sunflower oil is nearing its expiration, and it remains unclear whether it will be extended.
The vote on the Argentine budget was followed with great interest, as the bill included a clause that would have allowed for an increase in export taxes on corn and wheat. Although the potential increase was only 2 percentage points, and in practice would not generate more revenue, it could be seen politically as a measure to lower food costs.
The international market remains focused on the complex macroeconomic situation, the end of the North American harvest, and a very successful planting season in Brazil. Locally, the focus is on the drought and the lingering effects of the soybean dollar.
Regarding the drought in Argentina, although it is beginning to ease, it is too late for wheat and early corn. In this context, no one is selling, and many are trying to buy back their stocks to reduce their exposure. It is possible that
Only 20% of the corn area will be early, and it will be very complicated with the weather.
On the soybean dollar front, so much liquidity was generated that there is no need to sell today. This is causing genuine business to almost disappear.
The dry, frosty weather has led to reduced production estimates, and the balance between supply and demand threatens to turn negative.
At the same time, the macroeconomic environment in which the grain market operates continues to become more complex: the US reported slightly higher-than-expected inflation, suggesting it will raise interest rates again. This is compounded by new COVID cases in China and limited energy availability in Europe.
In the international grain market, the focus remains on macroeconomic factors: the weak dollar, oil price movements, signs of slower economic growth, and the escalating Russia/Ukraine conflict. The USDA report is expected to show lower corn production and stocks, and higher soybean stocks.
In the local market, dry conditions are also a factor, which for practical purposes is hitting wheat hard, and delaying the planting of early corn to such an extent that a shift of area to late corn or soybeans is already expected.
Complex situations are unfolding in the international market. Regarding the macroeconomic environment, rising interest rates in the US and Europe are a cause for concern, even as other countries accelerate their economies. This is due not only to financial inflows but also to slower economic activity.
Locally, dry conditions are jeopardizing wheat production, which is threatened by insufficient output for both authorized exports and domestic consumption.
“The objectives set for the soybean dollar were met: Exporters bought more than 10 million tons of grain and liquidated more than US$5.000 billion in less than a month. And although the ban on trading the MEP/CCL dollar—imposed after the program's launch—generated anger, trading continued strongly,” Romano begins to explain. “But, in addition, we had another unpleasant surprise. The program was set to end a week early, given that buyers decided to withdraw to have enough time to submit the required liquidations. Because of this, supply surged in the final trading sessions, and prices plummeted.”
In the international market, the Fed's rate hike, accompanied by the announcement that they will continue to rise even more aggressively than planned, negatively impacted commodities, and grains were no exception.
The Liaison Committee called for a single exchange rate and threatened to break off negotiations if the Central Bank's measure continued. After the second week of the soybean dollar's implementation, we are now close to the planned revenue target.
Regarding the international context, the US inflation figure was higher than expected. It can be inferred that oil demand will stop growing in the fourth quarter. Despite the humanitarian corridor, Ukraine's grain exports were 35% lower compared to the previous year.
Last week was considered “very positive” in terms of foreign currency inflows, with approximately $2.000 billion entering the country. However, for this week, the professor from the Center for Agribusiness and Food at the Universidad AustralDante Romano explains the downside of this measure. “There are many,” he warns.
Regarding the "B" sides, Romano reviews the data from the Quinquela Fund Manager report: "This report states that this will generate an additional liquidity of almost 25% of the monetary base in September, which could strongly impact inflation and, to control it, lead to increases in interest rates."
The Argentine climate is not only affecting wheat, which is in critical periods with low moisture levels, but also the upcoming planting of corn and soybeans, with no rain forecast.
Regarding the new soybean dollar, announced this Sunday, September 3rd, by Minister Sergio Massa, Romano observes: its first version expired with very little support, and the details of this new announcement are still unknown. So, why might a soybean dollar at 200 pesos/USD cause problems?
Another week has passed without concrete news for the agricultural sector. Romano says that "the expectation of some improvement in soybean marketing is hindering the usual low sales for producers at this time of year."
Given the lack of interest in the soybean dollar, the Federation of Collectors proposed improving the MEP dollar percentage, encouraging exporters to have instruments to leave the exchange rate to be fixed, and taking part of the sales into account for tax payment.
“The uncertain climate outlook for next year is leading producers to reserve this year’s profit margin in their currency (soybeans) in case 22/23 ends up causing problems, not only in terms of production, but also due to high production costs,” explains the specialist from Austral.
There are still no concrete measures from the government for producers, "and fundamental changes are already being ruled out." Marketing continues as usual, with few soybean sales and slightly more corn.
With seven business days remaining before the end of the "soy dollar" market, only one bank is currently operating, and two more are expected to join this week, but there is still no sign of interest from producers. "There was talk of extending the deadlines, potentially increasing the percentage of savings dollars that can be purchased, and making the process more flexible," Romano explains. Low soil moisture in Argentina is jeopardizing profitability for 22/23. "Seizing prices that allow for profit margins during periods of volatility is key," he advises.
The first transactions involving the "soybean dollar" began to appear. Prof. Dante RomanoHe explains that only one bank has it available, "but—beyond that—there's little interest from the average producer, and the large ones are already largely sold out." He also indicated that "we still haven't seen any concrete measures from the government for producers, but—at least—the first meeting at the political level took place, and it's expected that the technical teams will begin working this week."
Regarding local crops, he stated: "Wheat planting has finished, soil moisture has improved, but the crops are struggling to recover. More rain is needed as we approach spring."
Political uncertainty due to rumors of changes that could have a strong impact on the remaining old harvest, while for the new harvest the input-output ratio remains very high, and the weather is dry.
The return of the Ministry of Agriculture to the purview of the Ministry of Economy, with the rank of secretariat, generated discontent. “However, Sergio Massa’s arrival at the ‘super Ministry of Economy’ generated great expectations, as rumors had circulated ranging from lower export taxes to a preferential exchange rate. Meanwhile, soybean sales continue at a slow pace, while corn sales are accelerating,” Romano explains.
There have been further changes in the economic cabinet, and new measures are expected to be announced. The agricultural export sector has been in the spotlight, and Romano analyzes it in detail in this edition. Regarding the soybean dollar, the first issue is the lack of confidence in the process"It is true that they are given a tool they did not have before, and the possibility that for up to 30% they can buy banknotes at an exchange rate lower than the free market rate, and they are allowed to have special deposits that 'copy' the official dollar and are on demand."
The intention behind the decision to create these instruments is correct. The mistake lies in pointing somewhat complex instruments at producers, who still remember when they couldn't withdraw their deposits and nobody gave them an explanation.", states
Romano warns about "Another drop in Argentine wheat planting intentions. We are already 500.000 hectares below the target and this could lead to shortages next year."
The professor adds that "As if this weren't enough, there's a shortage of diesel fuel, which delays the shipment of goods to port. Furthermore, the high exchange rate gap means that if we decide to sell and then buy dollars to save in the same currency in which the supplies we'll need to buy next year are priced, we're being cautious with our sales."
Finally, he points out that "Today we should be looking at how the climate is shaping up in the US at a time of very low stocks, but the main drivers are financial and geopolitical. Even internally."
While grain prices dipped slightly, they appear to have stabilized internationally. It's worth remembering that the main bearish factor is financial. The Fed's rate hikes strengthen the dollar, making commodities less attractive to financial investors. The underlying fundamentals were already priced in, and the impact of the North American weather was overshadowed by this factor. However, speculators' positions changed little in the last week.
Locally, having pesos available is seen as a problem. Grain buyers, in order to offload their peso holdings and secure grain shipments, are offering a higher premium to those willing to deliver and collect payment quickly. Regarding production, the corn harvest continues to progress slowly. Wheat planting is 10% complete, and we're already in the final stretch. Meanwhile, the lack of water is a concern in some areas.
Several factors drove down grain prices: the revaluation of the dollar, a greater supply of oils, the possibility that Ukraine will finally find a way to ship, and improved weather in the US.
The dry weather in Argentina has claimed another 100.000 hectares, and 15% of the area still needs to be sown. There are fears of a potential wheat shortage if the adverse weather continues. Harvesting of late-planted corn is picking up pace, but the queue of ships waiting to load is so long that, for now, there is no harvest pressure. However, this could change.
The messy departure from government of the now former Minister of Economy, Martín Guzmán, and the political instability generated by friction within different factions of the Government, will lead to greater producer retention.
For her part, the incoming minister, Silvina Batakis, already engaged in dialogue with the agricultural sector during her tenure as Minister of Economy for the Province of Buenos Aires, from 2011 to 2015. She frequently advocated for increased export taxes, and in a context of expanding public spending, coupled with the difficulties in financing it, this issue could resurface. This coincides with a sharp drop in grain prices on the international market, occurring at the worst possible time and also hindering sales of futures contracts.
While the late corn harvest in Argentina is gaining momentum, the lack of diesel fuel at pump prices is making transportation impossible. "A strike has been launched demanding higher freight rates to compensate for the higher price at which diesel 'appears'. With these strikes, we'll see profitability decline," he predicts.
On the other hand, there is a "surprising and sharp drop in grain prices, as the financial context is working against them." Internationally, there is speculation that Ukraine may export more. And while the weather has improved in the US, stocks remain tight.
