On the last day of March, the United States Department of Agriculture (USDA), like every year, published the planting intention report of North American producers for the 2021/22 season in the United States. Due to this fact alone, the market reacted with strong increases that had an impact on the agri-food sector, especially in the price of corn and soybeans. American producers decided to sow more corn than soybeans, the corn area is estimated at 36.9 million hectares, resulting in a slight increase compared to the previous season, but remaining almost 1 million hectares below expectations. Soybeans will be sown on 35.5 million hectares, almost 1.8 million hectares less than last year.

Additionally, USDA reported quarterly US stocks as of March 1. For corn, 195.6 million tons were known (vs 197.3 million estimated). For soybeans, the stock was 42.6 million tons, against an estimate of 41.7 million tons. These simple data generated increases in the agri-food sector, reaching the price of soybeans in Chicago at US $ 527 and raising the price of corn to US $ 222 / ton.

The prices of both products had an upward trend due to the impact of the drought in the core area of Argentina and Brazil, reasons that determined a 45% increase in soybean prices in 11 months. But that increase was not enough for US producers to decide to plant the oilseed. Corn in the same period increased by 24.7%, but producers review the medium-term horizon and define planting corn mainly for three reasons: biofuel is expected to have an increase in demand as soon as transporters return to the routes after the Covid, corn has a secure export demand and it is more sustainable to produce year-on-year crop rotation to enhance the value of the soil in the medium term.

These decisions, taken geographically far away from the Argentine producer, show the close interrelation of the international market in the main items produced in Argentina and that are the main sustenance of the Argentine economy, as they become the only generator of genuine foreign exchange.

Beef prices situation in Australia

In relation to beef, according to the March projections of the USDA, a growth in world consumption is estimated for this year of 2%, due to the expected post-pandemic recovery. Taking into account that Argentina, together with Australia and Brazil provide 45% of world beef exports, the variables that determine the production of these three countries have an impact on the world market.

Historically, Australian cattle prices used to remain similar to South American producing countries, but the drought suffered during the years 2014/15 restricted supply from Australia, prices rose and since then they have never recovered their previous price ratio. Unlike annual crops, the replenishment of livestock stocks takes a longer period. That is why this situation should not be read as something temporary in 2021 since, depending on its outcome, it may condition new price balances in the future.

Today Australian beef prices are by far the most expensive in the world, reaching between USD 5.20 and USD 5.50 per kilo on the butcher’s hook. Already since mid-2020, these references had exceeded those of the North American market, currently positioned at less than USD 4 and it is estimated that by the last quarter of the year they will end up exceeding prices in Europe, which are currently around the USD 4.50 per kilo.

Cattle farming status in Brazil

Brazil is currently the world’s leading exporter of beef and this year it is undergoing a process similar to that in Australia, although it originated from different causes. Given the growing margin offered by Brazilian breeding, producers retain more than in other periods the retention of females, further restricting the supply of animals for slaughter. This fact generates an acute shortage of supply, which has determined that several slaughter plants have been forced to temporarily paralyze their operations due to not being able to obtain supplies. In effect, powerful meat processing companies have begun to pressure the authorities of the Brazilian Ministry of Agriculture to obtain authorization to import live cattle from neighboring countries, especially to Paraguay, as a way to ensure the continuity of industrial operations. Of course, these requirements generated strong disputes with local farmers, in principle because they did not prioritize Brazilian inputs, but also because of the potential risks that livestock imports without due traceability could generate from a sanitary point of view. During 2020 the slaughter level in Brazil fell by about 10% to 31,471 million head, the lowest slaughter in the last 10 years. However, its exports were record in 2020, after exceeding 2 million tons, with a growth of 8% compared to the 1,875 million tons verified in 2019.

Beef in Argentina

Argentina is probably the country that has suffered the least relative impact if we consider that, like Brazil, it registered a record in exports of 900 thousand tons that marked a rise of 6.5% year-on-year, but at the same time it remained stable, both the slaughter level and the production of beef. In the Argentine case, as production remained the same and with exports on the rise, Argentine domestic consumption was the one who ended up adjusting the equation, with a fall of 1.4% per year.

he level of extraction that was required to sustain the slaughter on an Argentine national bovine herd, which has not yet managed to improve its main productivity indicators, leads to the need to gradually enter a phase of greater retention of females, in a process with relative impact less noticeable in the immediate, but setting trend. At the same time, the macroeconomic context in Argentina, with high inflation rates that prioritize the holding of stocks before their monetization, is also positioned as a key factor when defining this process of retaining stocks of treasury to which all the main indicators converge.

Despite the competitiveness that the Argentine currency gives it due to the exchange rate, today the Argentine steer stopped being the cheapest to position itself, as a scarce good, around USD 3.78, above USD 3, 46 from Brazil and even compared to USD 3.53 from Uruguay, which showed its peak of greatest scarcity during the last two years and currently with indicators of an upcoming stabilization.

With the sole exception of Uruguay, the rest of the producing countries have shown increases in the prices of steers for more than 10 months.

Purchases from China increase

Having analyzed the situation of the world supply of bovine meat, on the demand side, China appears that, even having recovered its pork meat stock and the apparent stabilization of its internal balance, maintains a growing trend of purchases in the three types of meat. In the case of beef, during the first two months of the year, it imported 1.6 million tons, 28% more than imports compared to a year ago. Indeed, in recent weeks the demand from the great Asian country has been improving the prices paid for imported beef, a sign that several operators in the world market are beginning to look at it with caution.

Meanwhile, the rest of the world continues to advance in vaccination and testing, although with intervals of temporary closures in some activities, expectations of a recovery in consumption are rekindled. The governments of the main consuming countries, especially in the United States and in the European bloc, are determined to leverage the growth of their economies with strong incentive policies. When the long-awaited reactivation begins to materialize next summer in the northern hemisphere, it is very likely that the meat market could face an offer with limited immediate response capacity due to the lack of stock.

The strong increase in commodity prices is currently impacting Argentina, allowing the income of dollars to increase substantially due to the liquidation of exports in the months of January and February 2021. The growth of exports, measured in dollars, during the The first two months of 2021 came mainly from the soy complex. Soybean meal generated additional exports of 868 M US $, oil 445 MUS $ and biodiesel 137 M US $. The outlook for prices is favorable in the 2021 post-pandemic stage, even in very difficult conditions in the Argentine tax environment that materializes the lack of government incentive for producers of these goods of international quality, with a tax pressure that is close to 70% of income. Among the taxes that the Argentine producer must pay, there are national ones, such as export duties, VAT, minimum presumed profit, personal property and profits; provincial ones, such as rural real estate, stamps, and gross income; and municipal rates per hectare. An important disincentive for the most innovative productive sector.

Source:

• Informe USDA 31/3/21
• Informe económico marzo de BCRosario
• ipcva

Author: Julio Pulisich. Socio/director en Torre Pulisich