Includes 3 FREE quarterly updates.
BMI View: Argentine grain production had a generally poor year in 2011/12, with corn, soybean and
wheat production all falling year-on-year (y-o-y). This was mainly a function of dry weather as part of
the La Niña weather pattern. In the midst of concerns around global food supply, Argentina could be a
significant bright spot, with record production forecast for corn and soybean in 2012/13. Furthermore,
the country’s once struggling beef sector appears to be finally making some progress towards herd
expansion. Argentina has long since relinquished its position as South America’s pre-eminent food
producer to Brazil, but the sector remains a vital part of the Argentine economy. Despite this, the poor
relationship between farmers and the government (mainly due to export tax disputes) is likely to continue.
- Corn production growth to 2015/16: average 6.5% per year to 31.4mn tonnes. We expect the
area harvested to increase as improved prices and export opportunities arising from increasing
livestock and biofuel production encourage farmers to plant corn. However, some of this growth
will also be due to base effects.
- Soybean production growth to 2015/16: average 6.0% per year to 52.0mn tonnes. This is
mainly due to recent government approval for new types of genetically modified seeds, which
are likely to boost yields over the medium term.
- Beef production growth to 2016: 28.3% on the 2011 level to 3.2mn tonnes. In 2011/12, the
return of rain in many areas and the improvement of pastures, combined with firm beef prices,
led farmers to start rebuilding herds. Production would most likely be higher if export taxes on
beef, at 15%, were reduced. Much of this growth is due to base effects.
- 2012 real GDP growth: 4.0% y-o-y (down from 8.9% in 2011; predicted to average 4% from
now until 2016).
- Consumer price index: 25% y-o-y in 2012 (up from 9% y-o-y in 2011).
The Argentine government announced two policies in August that will impact future soybean production.
First, the government increased the export tax on biodiesel from 20% to 32%, now equal to soybean oil
and soybean meal export taxes. The government enacted the policy (which includes reducing the internal
reference price by 15%) to reduce biodiesel exports and make domestic biodiesel cheaper. It also would
increase the competitiveness of soybean oil exports, which are often compromised as soybean oil is
occasionally converted into biodiesel owing to better returns.
Second, the government allowed temporary soybean imports for the first time since 2009. Soybean
crushers have capacity for roughly 50mn tonnes of soybeans, and given the deficiency of the 2011/12
crop (at around 40mn tonnes), many crushers suffered from poor margins and subsequently laid off
workers. Crushers are required to purchase 5mn tonnes of domestic soybean for every 1mn tonnes of
imports (mainly from Paraguay) although they are exempt from paying the full 32% soybean oil export
tax, instead paying the value-added portion. We do not expect imports from Paraguay to continue should
the 2012/13 crop come in at current expectations.
BMI believes that the recent flooding in central Argentina (particularly the Buenos Aires province) will
have little impact on the country’s 2012/13 wheat crop. Concerns mounted after heavy rains flooded
8.6mn hectares of farmland outside the capital and forced state governor Daniel Scioli to declare an
emergency, allowing agricultural businesses to delay re-paying debts and/or taxes. However, according to
the Buenos Aires Grains Exchange, the flooding impacted areas that are not key growing regions. Indeed,
they believe the rains will have a beneficial effect on the country’s grain belt. In particular, the rain will
help replenish soil conditions at a time when the crop is at a sensitive point in the production cycle.