For
Paul Adriani
Pablo Adriani & Associates
The exchange rate income projections for the whole of 2023 for the agro-industrial complex are not very encouraging, everything indicates that we are facing the worst year since 2009. Preliminary data confirms a historic drop of $15.100 billion from a 2022 record of $42.343 billion. In contrast, 2023 threatens a total foreign exchange income of US$27.258 billion, including exports of feed grains, grains, oilseeds, oils and by-products.
Among the factors influencing this pronounced decline are not just drought, that we are going through this campaign with the consequent lower production volumes and exportable balances; but there is also a strong risk of retention of grain by the producer from the second half in a year heavily conditioned by the uncertainty generated by the elections.
This potential “manufacturer selling resistance,” expected mostly in the second half, could reach $7.5 billion. It is probable that a scenario of uncertainty without clear rules of the game and without sales incentives would invite producers to withhold 8 million tons of soybeans and 5 million tons of corn; Y putting in check not only the sale of inputs of the next campaign but also of the future harvest 2023/24.
In practice this means that foreign exchange earnings by 2023 would barely reach $20 trillion.
The producers’ strong reluctance to sell their crops would occur in the second half of the year, due to the fact that we will transit a period with a high level of political uncertainty which will begin with the gubernatorial elections between March and September, will continue with the PASO, the presidential elections in October and finally the inauguration of the next government on 10 December.
In the detailed projection in the infographic, a decline in foreign exchange inflows of US$15.1 billion for 2023 was considered attributable to the effect of drought and its impact on lower output and exportable balances.
The decline in foreign currency inflows in the first half will be affected by la massive sale of soybeans during the last quarter of 2022a figure that will affect the lower supply of soybeans available in the first months of 2023, due to less acreage under early corn and yield and production losses of corn and soybeans due to the direct effect of drought.
The worst drought in decades
The effect of the drought, which has not yet reversed in many areas of the country, has so far wiped out 50% of the wheat crop, 40% of the soybean crop and 20% of corn production. They have lost 33 million tons between these three crops, and is a direct loss on grain exports and lower industrial processing of soybeans. In the case of maize there are still 1 million hectares to plant, and for this the end is still open.
Production in 2023 is expected at 106 million tons, a decrease of 33 million tonnes or 24% from the 2022 production record of 138.7 million tonnes. With estimates by private institutions, they estimate a production of 12 million tons of wheat, 37 million tons of soybeans and 43 million tons of corn.
All this scenario puts at risk the export sector and the activity of the soybean agro-industrial sector, the most important in Argentina and the largest exporter of soybean oil and soybean meal in the world. And no small matter, the main sector that generates foreign currency in the country.
One of the most affected sectors will be the exporter. The decline in wheat exports has resulted in a drop in foreign exchange income of $3.375 billion and in the case of corn the losses so far have been $2.100 billion. But the big loser is the soy complex with an expected decline in 2023 foreign exchange earnings of US $9,100 million, including exports of beans, soybean oil and soybean meal, compared to foreign exchange entered in 2022.
for his part the oil sector will also suffer because there will be a very sharp drop in its annual milling with the risk of reaching the lowest soybean processing volume in the last 20 years. If the soybean production estimates for 2023 of prestigious institutions such as the Rosario Stock Exchange were confirmed at 37 million tons, we would be facing the second lowest soybean production volume in the past 15 years. The lowest soybean milling of the decade occurred in 2020 with a processing volume of 36 million tons, in 2021 it was 39 million tons and in 2022 it reached 42.4 million tons.
In 2020 it was not the meteorological phenomenon that caused the drop in production and grinding volume, but the producer’s crop conservation strategy, and his decision not to sell 12 million tons to safeguard their value, given the rumors of changes in foreign exchange policy and the current economic uncertainty.
The volume of grinding in 2023 could reach 30 million tons, which would be the lowest value in the last 20 years. With a theoretical milling capacity volume of 70 million tons per year, we would be looking at a capacity utilization of 40% and idle capacity could exceed 60%.
Not only has the drought negatively impacted production volumes, potential future supply from producers and the sharp drop in exportable balances. Mashed potato export promotion plans. “Dollar soybean 200” and “Dollar soybean 230” have mobilized producers to sell a record volume of 20 million tons in just three months, and this is an offer that could hit the market during the first quarter of 2023, which it’s not going to happen.
Again the big losers will be the producers, which could suffer a $15 billion drop in revenue, with very little chance of recovery. At this point it will be necessary to see what decisions this government is willing to take (certainly a reissue of the Soy Dollar), or what measures will be anticipated by those who consider themselves a potential winner after the PASO, to mitigate this negative scenario and be able to cushion this which is already confirmed as a disaster situation and national economic emergency.
Source: Clarin
