The Big Picture: Fluctuating grain trade volumes from Argentina
Historic drought had stifled grain exports earlier in the year, but now shipments on the rise.
Recent impetus came from the “Export Increase Programme”, a 25% devaluation against the official exchange rate for some agricultural exports, introduced in late July until end-August (the so-called “corn dollar”).
The main positive risk to the trade outlook would be an election victory for one of two candidates in the 22 October presidential election to support a cut in grain export taxes.
Argentina’s grain exports have to some extent been overshadowed this year by events in the Black Sea, Brazil’s bumper exports and, more recently, low water levels along the Mississippi.
Yet, the country’s grain export flows have been subject to ups and downs, caused by (1) the worst drought in 50 years, (2) so-called “soy dollar” and “corn dollar” temporary exchange rates—government responses to the strength of the peso, which is a by-product of efforts to tame inflation, and (3) a pause in export sales ahead of the first round of the presidential election next month.
The historic drought helped squeeze Argentina’s combined grain and soy exports down by a massive 35m tonnes YoY to 58.4m tonnes in the various 2022/23 trade years, according to the US Department of Agriculture (USDA).
Gauging the tempo of the post-drought recovery is complicated by the strength of the peso and temporary devaluations aimed at lifting grain/soy sales. Indeed, previously, changes in export taxation or even anticipated changes have influenced the pace of farmers’ sales in Argentina.
Argentina's government has implemented incentives to promote sales and improve the dollar share for corn exports. This strategy, which they previously employed for soybeans, yielded positive results last year. The latest corn dollar expired on 31 August. As a result, corn exports jumped from 2.7m tonnes in July to 4.3m tonnes in August, the first 4m tonne-month in more than a year. Shipping data indicate a robust pace of exports in September too.
Strong August shipments of corn from Argentina prompted the USDA to upgrade its 2022/23 (Oct/Sep) estimate to 25.0m tonnes.
Argentina’s corn exports have—from a shipping perspective—been far more significant than wheat for example, given (1) larger volumes and (2) a broader spread of destinations. These range from Peru (on geared bulkers) and North Africa (mainly geared) to the Middle East and Southeast Asia, with significant volumes shipped to South Korea (mostly on Panamax).
For next year, the IGC (International Grains Council)noted that rainfall earlier this month provided a useful boost for developing crops, but that more is needed. The current USDA corn export projection for Argentina of 33.5m tonnes would represent an annual increase of 8.5m tonnes, but may be unevenly paced if the corn dollar were to be reintroduced.
Argentina’s efforts with the soy dollar have not always been viewed as successful. Reports from 2022 suggested some farmers had slowed exports with a view to extracting more favourable foreign exchange terms from the government. three “soy dollar” exchange rates during 2022-23 and provides scope for further variations in Argentina’s export pace, if such measures were to be repeated.
Argentina is well established as the world’s largest supplier of soymeal. Exports are focused on markets in the Mediterranean (on a mixture of sub-Cape vessels), plus Southeast Asia (mainly on Panamaxes).
Last year the USDA estimated 21.1m tonnes of soymeal exports from Argentina. Seeding in Argentina is expected imminently, and an El Niño event in growing areas may herald a return to normal weather. For 2022/23 the USDA projects exports of 23.4m tonnes, growth of 2.3m tonnes.
Argentina’s import share into China had jumped (from a negligible quantity in 2019/20) following China’s sudden introduction of a 80.5% import tariff on Australian barley from June 2020. However, import demand for Argentinian barley from China was reported by the USDA this month to be “waning”. A slight increase in barley exports to 3.4m tonnes is expected in the year beginning 1 October.
Of less importance to shipping, wheat exports from Argentina have performed well below levels of recent years. From a tonne-mile perspective, the negative effect is compounded by the fact the trade was dominated by shorthaul voyages (largely on Handysizes to Brazil). Only during stronger years for Argentina’s wheat do destinations in the Mediterranean (such as Algeria and Spain) and Southeast Asia (Indonesia and Vietnam)feature more regularly.
The USDA expects a wheat export rebound to 10.5 tonnes in 2023/24 (July/June) from 4.7m tonnes in the previous trade year. It could therefore be that an expected retreat in Australian wheat exports in the coming export season, starting Q1, creates opportunities for alternative suppliers, which could include Argentina.
Argentina is poised for a revival in grain exports in the coming year, though the pace may be distorted either by (1) the timing export incentives/foreign exchange considerations and other issues related to soaring inflation or (2) or more exporter-friendly policies following this year’s presidential election.