Argentina’s drought: counting the costs

The drought sweeping swathes of South America’s prime farmland is really starting to bite in Argentina now as farmers count the cost of irrevocably lost crops.

Farmers themselves are looking at losses of $2.5bn – or $94 per hectare for soya and $167 per hectare for corn, according to this report in La Nación newspaper. El Cronista Comercial business paper reckons losses in export revenue for Argentina, one of the world’s major farm export nations, could be as much as $6bn.

Argentina typically sows a late corn and soya crop, but prospects for so-called “second corn” have been ruined by the lack of rain and “what there is now is all there will be,” Gastón Fernández Palma, president of the Argentine No-Till Farmers’ Association, told beyondbrics.

Argentina maximised yields and slashed costs by the “no-till” method, in which crops are sown on top of the stumps of earlier ones, such as wheat. But with much of the prime producing zone in the northwest of the province of Buenos Aires, south of Santa Fé and southeast Córdoba still parched and gasping for rain, “we’re getting right to the limit (for sowing)” Fernández Palma said of “second soya”. Mind you, he said “some farmers will still sow out of desperation”.

Farmers still have 1m hectares of second soya to sow, but “the longer they wait, the lower the yields will be,” echoed Armando Casalins, a technical advisor at the Grains Storage Federation. He reckoned Argentina’s corn harvest will now be 21m tonnes “and falling”, down from an estimated 28m, while soya production will be 3m to 4m tonnes lower than expected. Even the USDA’s latest soya estimate, 50.5m tonnes, may be hard to reach, farmers say.

“February is critical – it’s the month when the yields are defined in Argentina,” said one executive at a major multinational agricultural grains and oil producer, who asked not to be named. Though rains last week were patchy and mostly disappointing, good rainfall from now on could still salvage some production. “We started the year expecting 52m to 53m tonnes of soya and now, if the rains are good, we could see production of 49m. But no more,” he said. Paraguay is also looking at production of 5m tonnes, down from 7.5m; Brazil less than 70m, compared with 72m to 73m, and Uruguay some 300,000 tonnes less than its expected 2m, he added.

Drought is just the latest headache big producers are facing in one of the world’s top producers of agricultural commodities. Some large producers have come under the spotlight of Argentine tax investigators and many are reticent about speaking publicly, particularly since the Argentine government regularly restricts some farm exports. In short, there is a fear that too much emphasis on the dreadful effects of the drought could encourage the government to cut back on planned corn exports with the excuse of waiting to see how much corn will be produced in order to ensure the domestic market does not go short.

Soya producers have less to worry about on that score – soya for domestic consumption, aside from biofuels, is minimal. The cash crop is taxed at a rate of 32 per cent on exports of soya oil and 35 per cent for soya beans – and it is the latter which will suffer the most from the fall in production, the multinational executive said.

“Argentina is very uncompetitive with China (in soya beans themselves),” he said.Despite what he called “horrible, awful” margins on crushing for oil, the proliferation of biodiesel plants like this one means that all investors in the biodiesel sectors are desperate to recover their investment costs, so crushing will predominate. As a result, he said Argentina’s exports of soya bens are expected to fall to around 5m tonnes this season, from 10.3m tonnes in 2010-11.

China, meanwhile, is buying beans to crush to produce its own oil, and though China used to be Argentina’s biggest soya oil market, “they’re not buying now,” said the executive, adding India had replaced it as the top soya oil export destination.

Related reading:
Argentina: farmers pray for rain, beyondbrics
The weather: La Niña rolls in for a second round, FT
Drought hits Latin American crops, FT
La Niña weakens but could there be more?, FT