Argentina's agricultural sector is currently undergoing a period of uncertainty. This uncertainty is not just climatic but is also deeply intertwined with the country's political landscape, especially following the election of political outsider Javier Milei.
Milei’s election last week ushers in a new era of economic experiments. Milei's lack of a strong coalition in Congress poses challenges for passing significant legislative changes, particularly those impacting the agricultural sector. This includes potential modifications to agricultural export taxes and economic policies affecting the Argentine peso. The uncertainty surrounding these potential changes is causing apprehension among exporters and producers there.
There is speculation about the possible reduction or elimination of agricultural export tariffs under Milei's administration. In response, Argentine farmers are likely to withhold selling their produce until early 2024, in anticipation of changes in the export tax structure. This hesitance to sell, coupled with ongoing inflation and currency devaluation, encourages producers to store crops, particularly soybeans.
Production Outlook Uncertain Too
Argentina's agricultural output, especially in corn and soybeans, has been adversely affected by last year's drought. The production figures for corn and soybeans have seen a decline, with corn exports from March to November calculated at 19.9 million tonnes compared to 30.6 million the previous year. Similarly, the soybean crush rate is expected to be lower than in past years. These reductions in production and processing not only impact Argentina's domestic market but also have significant implications for global supply chains. Argentina is a major global corn exporter and the world’s largest exporter of soybean meal.
Even More Concerns Loom Large
The Argentine peso's anticipated weakening and the country's soaring inflation rate further complicate the agricultural sector's outlook. A weaker currency may seem to favour exports, but coupled with high inflation, it creates a challenging environment for producers and exporters. This economic scenario influences decisions regarding crop storage and sales, impacting the availability of commodities for global markets.
Argentina's agricultural sector is at a crossroads, influenced heavily by both climatic conditions and the country's shifting political landscape. The decisions and policies of the Milei administration will significantly impact the country's agricultural production and export capabilities. This, in turn, will have a substantial effect on the global markets for key commodities such as corn and soybeans. A lot is riding on unpredictable Mother Nature - and the untested new President as well.