Argy-bargy in Argentina

Grain | 7th January 2021 | By Andrew Whitelaw

Snapshot

  • Argentina is continuing to suffer through a drought.
  • The Argentinian government have introduced a suspension of corn exports for January and February.
  • The intention is to assist local corn consumers by increasing stocks.
  • Argentina is in the top 5, and regularly a top 3 contributor to global corn trade.
  • The suspension has influenced global corn pricing.
  • Wheat and corn pricing tend to track one another.

The Detail

It doesn’t feel long since Putin’s government put barriers in the way of wheat exports (see here & here). It is now the Argentinian government’s turn.

Argentina has been struggling through a drought this year (see here), resulting in continual downgrades to production in both corn and wheat. The rainfall during December improved but remained below the average for the month.

One of the main growing areas of Cordoba, and it is has experienced an abysmal season. The government of Argentina was concerned and has interfered in their export market.

On another note, we also have full analysis on Australian rainfall available here to provide you with an indication of how each area of Australia is performing (or not).

Government intervention

There has been a lot of argy-bargy in Argentina over the past month due to strikes, which had delayed the loading of oilseed vessels. This was resolved with the union agreeing on a hefty increase in salary.

As the oilseed workers went back to the wharf, the government came out with a statement banning the export of corn for January and February in order to protect domestic consumers. A frustrating time for exporters from Argentina, many of which operate in both the corn and oilseed markets.

"This decision is based on the need to ensure the supply of grain for the sectors that use it as a raw material for the production of animal protein such as pork, chicken, eggs, milk and cattle, where corn represents a significant component of production costs".

Generally, government intervention in markets is ineffectual, as it tends to not produce the desired effect. In this case, the government is attempting to reduce prices by removing the export market for two months.

The growers in Argentina have however responded that they will not sell into the market whilst they are hogtied by government policies – which in turn has the possibility of increasing domestic pricing!

What is the impact?

Argentina is one of the worlds largest corn exporters and is in the top 5 based on exports from 2010 to present. They regularly take the 3rd largest spot.

The removal of one of the largest exporters has a considerable impact, as it removes a large volume of corn from the marketplace, if only for two months.

The reality is that corn exports were already slowing, and were already around 1.5mmt lower than last season.

The chart below shows the export volumes of corn from Argentina for Jan/Feb since 2012. As we can see it can be quite variable, however around 2mmt would be expected during this period. The question remains whether farmers or others holding stocks in Argentina will fold and sell to the domestic market or wait until March.

The impact of this suspension has been felt in the corn market, with corn in recent days hitting the highest levels since 2014. Does this affect us?

Who cares? we don’t grow corn!

There is very little corn grown in Australia, but that doesn’t mean we aren’t affected by movements in corn.

As we have mentioned many times, commodities trade in subsets, i.e. fibres (here) or oilseeds. The same occurs between what and corn.

They are both commodities which to an extent are interchangeable. This means that if one becomes too expensive, the other will be substituted. In the chart below the monthly movement in prices of CBOT corn and wheat is displayed.

We can see that for all intents and purposes, they tend to track one another. This bodes well for wheat prices (here) as the bulk of our price is determined mainly by overseas movements, especially in a big production year.

Tags

  • Argentina
  • Wheat
  • Corn