While the agricultural dollar tries to hide the precipice between the official dollar and the blue dollar, the international market turns against the sector
By Antonio D’Eramo
05/05/2023 – 17,32hs
The country’s inconsistent exchange policy, which had its origin in the mismanagement of the Nation’s monetary and fiscal foundations and the poor rainfall that originated from the climatic effects of the phenomenon known as “La Niña”, which produced a large-scale cooling of the temperature on the surface of the Pacific Ocean and changes in the tropical atmospheric circulation, they are only two aspects of a trinity that complicates the future performance of the Argentine countryside.
Because the other side of the triangle that sets off alarm bells for agricultural producers is the downward revision of the prices validated in the international market in the segment of soft foods such as soybeans, affected by the Chinese government’s decision to reduce its use in animal feed, and wheat, which has established itself as the most bearish raw material this year after achieving a agreement in the Black Sea, theater of operations of the war between Russia and Ukraine, to continue with the exports of the cereal.
Agricultural dollar, drought and falling prices: fatal combo for the countryside
In addition, in the case of wheat, prices are putting downward pressure because “good weather for winter crops and large harvests in the United States managed to stop concerns about global grain shortages,” an additional piece of information added by the stock market analyst, Ariel Ferrari.
Analysts who follow the charts of the US reference market CME Group “Chicago” understand that many investment funds and savers seek to protect their financial capital in more solid assets.
This movement driven by financial reasons is exacerbated at times of economic uncertainty, the Fed raised its reference rate again, and constant geopolitical crises, to which are added increasing commercial pressures between China and the US to win markets at favor of their companies.
Precisely, in the Asian power, the administration of Xi Jinping decided to launch a three-year campaign to reduce the use of soy in animal feed. This decision is made to reduce China’s dependence on foreign imports and directly affects soybean production in Argentina, Brazil and the United States. These last two countries provide 80% of this type of oilseed to the Asian market.
Producers face a fatal combo: droughts, the currency gap and a potential global recession.
According to an ING report “the Beijing government plans to reduce below 13% in 2025 the use of soybean meal in feedcompared to 14.5% in 2022″.
Although there are other commodities or fungible basic raw materials that Argentina sells abroad that are obtaining good prices in the international market, the International Monetary Fund has just presented a report to the G-20 forum, which brings together the twenty largest economies of the planet and of which Argentina is a member, alerting about the problems of the high volatility of prices in the international market.
The IMF warned about the volatility of prices: inflation, in the sights
The economists led by the Bulgarian Kristalina Georgieva affirmed that “… specifically, the economic growth and inflation of nations are affected by the volatility in the terms of trade of raw materials, that is, the variation in prices a country pays for imports of raw materials and the prices it receives for exports of the same products.
The document explains: “These price fluctuations can hurt economic growth in the long run, especially for exporters of raw materials. For example, larger price variations could induce greater volatility in the public finances of commodity-exporting countries and, therefore, give rise to intermittent public investment. In turn, this would hurt investment in both human capital and physical capital.”
On the other hand, the risks of a Western recession for the short and medium term continue to be latent in financial circles, as long as the fight against inflation is extended with monetary and fiscal tools.
At the World Economic Forum in Davos, a report was produced that points to coincidences among economists from large corporations when alerting that “…a global recession is likely.” An opinion that added 45% of adhesions. A similar percentage think that this scenario is unlikely, but, if it occurs, it will be focused on the capitalist economies of the West.
The increase in US wheat production and the drop in soybean imports in China make Argentine exports difficult.
These are the reasons why, starting in the second quarter of 2022, major corporate and investment funds are disarming positions in commodity futures and collapsing the prices of so-called green gold and wheat.
