Argentina was not much of a competitor in the global ag commodities market last year due to a historic drought that nearly halved 2022/23 soybean production versus the previous season and cut the corn crop by more than -30%. But thanks to the influence of the El Niño weather pattern, heavy rains in November and December finally broke the drought and Argentine farmers could be on track to more than make up the production losses they suffered last year. While the trade debates how big the 2023/24 corn and soybean harvests might grow, the other burning question is how policies enacted by new Argentine president Javier Millei could impact the country’s exports?
The USDA in its January crop production report left Argentina’s corn crop unchanged at 55 million metric tons, versus 34 last season. Soybean output was boosted to 50 MMT from 48 MMT previously and just 25 MMT in 2022/23. The Rosario Grains Exchange is even more optimistic, recently saying that both the corn and soybean harvests had “very good chances” of topping its current estimate of 59 MMT and 52 MMT, respectively. I’ve even heard some sources talking about +54 MMTs in new-crop soybean production for Argentina.
Keep in mind, most of Argentina’s soybeans are crushed into meal and oil and the country is typically the world’s top exporter of both. Argentina lost its spot as the top soybean meal exporter to Brazil in 2022/23 due to its disastrous soybean crop. However, Brazil topped Argentine soymeal exports by less than 600,000 metric tons. At the same time, Argentina held its crown as the top soyoil exporter. This was possible thanks to hefty soybean imports that were nearly triple 2021/22 levels.
With Argentina on course for what the Rosario exchange dubbed a “super harvest,” the big question now is what the country’s exports might look like. Much of that will be determined by the impact of wide-ranging reforms proposed by new Argentine president Javier Milei. Those proposals include the end to export limits but also an unexpected increase in export tariffs. Milei seeks to lift export tariffs for corn and wheat from 12% to 15%, and soybean meal and oil from 31% to 33%. Soybean export tariffs would be left unchanged at 33%.
Since this year’s crop has already been planted, the higher tariff measure is unlikely to have a significant short-term effect on Argentina’s production. However, experts warn that the increased tariffs along with soaring input costs could dent production in the seasons ahead. The economic and currency uncertainties could also lead Argentine farmers to hold back on selling their crops.
Milei’s government in December devalued the peso by more than 50% which benefits exporters but has sparked even higher inflation that most recently soared to over +211%. Milei has said once the “macroeconomic variables stabilize,” he will then “dollarize” Argentina’s economy. Meaning he intends to replace with US dollars all of the pesos existing in the economy in various forms. According to the report by JP Morgan, Argentina does not have enough reserves to pull off such a move. He may also lack support in Congress for any of his proposals.
Milei proposals are now being debated in Congress during a series of “extraordinary sessions” designed to fast-track its reform agenda. The extraordinary sessions are scheduled through Jan. 31 but there is no set timeline for a final vote. Milei’s coalition, La Libertad Avanza (LLA), and its loose ally, the rightwing PRO, hold just 75 of 257 seats in the lower house, so support is slim. If eventually approved by the lower house, the bill moves to the Senate, where the government is even weaker – LLA and PRO hold just 13 of 72 seats. (Sources: USDA, Rosario Grains Exchange, S&P Global, Financial Times)