Encouraging news for the economy in the mid and long-term: the drought that severely damaged the last wheat harvest and the current soybean and corn crops has ended, according to a report by the Rosario Grains Exchange.
The analysis provides a window of hope for producers to plan the next farming season — with regular rainfall expected for the fall — and the normalization of the entry of export duty dollars that, nonetheless, will not happen before the end of the year.
“The worst drought in Argentina in at least the last 60 years has ended. The last day of summer was the first day of a new script for Argentine weather,” said the Strategic Guide for Agriculture (GEA) crafted by the Rosario Grains Exchange. “The high pressure center that was limiting the development of storms from the center-east area of the country has finally moved.”
“The storms that took place between March 19 and 28 provided very good coverage and considerable accumulation in the center of the Pampa region.”
The determining element is that having regular rainfall this fall is key for the next fine grains season — wheat and barley that will be sowed in the upcoming months— and the 2023/2024 coarse grain. For the moment, the influx of dollars from the farming season is highly affected because the effects of the drought on the soybean and corn campaigns were more lethal than initial estimates suggested.
With the end of the drought, a better farming season, and sustained prices, Argentina’s future income in dollars is expected to stabilize, but not until late 2023.
According to projections by consultant Javier Preciado Patiño, former Undersecretary of Agricultural Markets, currency liquidation in March may stand at between US$1 and US$1.3 billion compared to US$2.98 billion in 2022. The most optimistic figures indicate that the inflow of dollars in the first quarter will be under US$3 billion, a 64% drop and the worst number for this period in 16 years. In turn, export duty collection may be around 34% of the total mass.
In this scenario with the input of the soybean crop, the situation will not improve in the mid-term. Normally, the economy gets most of its dollar injection starting in April thanks to the soybean and corn harvests, but the nearly 50% production drop will reduce the inflow of currency from agriculture by around US$15 billion, and that is only considering grains and their by-products. The reduction caused by the drought also impacts regional economies and the beef industry, which is showing a downward trend in international prices.
Industry sources explain that with much more benign weather, the big obstacle for the farming industry –and the economy in general– in the next harvest season will be the producers’ strong need for financing. Logically, a good soybean and corn season would have that issue covered, but looking ahead the scenario appears more complex, and that is where banks and inputs companies will play a strategic role.