Drought and shipping limits prevent Argentina from taking advantage of record grain prices due to Russian invasion of Ukraine

A severe drought and shipping quotas will prevent Argentina from benefiting from the highest international grain prices recorded in a decade as a result of Russia’s invasion of Ukraine, Argentina’s chamber of grain exporters and processors CIARA-CEC said.

Argentina is the world’s leading exporter of soybean oil and meal, and a major global supplier of wheat. Due to the Russian invasion of Ukraine that began on Thursday, the prices of both crops reached their highest values ​​since 2012 in the influential Chicago grain market.

However, Gustavo Idígoras, head of CIARA-CEC, said that the drought has caused millions of losses and that there is little remaining wheat authorized for export, after the country’s farmers completed their harvest in early January.

“The benefits of incremental prices due to the military conflict are very limited for Argentina due to a poor harvest due to drought,” explained Idígoras.

A drought has affected important agricultural areas in Argentina since December, forcing the Rosario Stock Exchange (BCR) to reduce its estimate of the 2021-2022 soybean harvest to 40.5 million tons, from the initial 45 million, and the of corn by 8 million tons to 48 million tons.

The 2021-2022 wheat production was not only not affected by the drought, but also achieved a record production of 22.1 million tons according to official data. But, according to the Government, farmers have already sold 15.5 million tons of the cereal and the domestic demand for the grain is 6 million tons.

Argentina limits exports to ensure local consumption of the cereal and Idígoras explained that the Government “already gave us almost 95% of the annual volume (allowed for export), so we have a very low remainder, less than a million tons, with which we are not going to take advantage of any benefit of price or displacement of prices”.

Russia and Ukraine are the main suppliers of wheat, with a combined 29% of world exports, most of which pass through Black Sea ports.

Ship traffic in the small Sea of ​​Azov has already been suspended, and if shipments from the Black Sea are interrupted, major importers, especially from the Middle East and North Africa, will be forced to look elsewhere.

“The prices of agricultural commodities are rising, but it occurs in a context of drought, therefore, the capture of price benefits is more limited,” explained the head of the chamber of exporters of Argentina, where the income of foreign currency it is essential for the battered South American economy.

However, according to a report from the Rosario Stock Exchange (BCR) last week, although Argentine agro-exporters will not benefit from the new high prices, they did take advantage of the increases in recent weeks caused by the lower global supply of grains and tension in Eastern Europe.

The BCR said that agricultural and agro-industrial exports for the 2021-2022 campaign would generate revenue of US$38.9 billion for Argentina, US$1.4 billion more than estimated in September.

In turn, Idígoras pointed out that the current level of wheat prices could encourage Argentine wheat producers when they start the 2022-2023 cycle, once the austral autumn has begun.

“Rising international prices always have a positive reaction from producers in Argentina. There is clearly an optimistic scenario in this sense, limited to the climatic conditions in the country in the coming months and to the global prices of inputs, which have grown a lot”, he said.