Increased Argentine production puts pressure on soybean prices on the international market

The 2023/24 Brazilian soybean harvest began amid climate concerns and risks of crop failure, predicted by the market due to irregular rainfall and temperatures caused by El Niño in the initial planting phase. As the harvest progressed, such concerns were minimized over time, and some regions have been showing better results than initially expected for the crop. However, the main surveys, up to the time of publication of this text, indicate, in general, a lower production than that recorded in 2022/23 in Brazil, a crop year with a record volume: 154,6 million tons of soybeans produced in the country.

Conab forecasts a 5% drop in production, estimating 146,8 million tons of soybeans in grains for the 2023/24 Brazilian harvest. The USDA, in its latest report published on March 8, projects a 7% drop in relation to its estimate for the previous harvest, however the USDA's basis of comparison was higher and the final value for the entity is projected at 155 million tons, a value that is followed by estimates from some market consultancies in Brazil. For the current harvest, estimates have been showing disparities of up to 10 million tons, depending on the source, something that is not usual, but that occurs at this time due to the uncertainties generated by climate issues, differences in the use of inputs by producers and the drop in prices observed throughout 2023 that influenced investments. Without going into the merits of the difference in estimates, there is a convergence towards the configuration of a scenario with a reduction in Brazilian production concomitantly with a strong movement of drop in grain prices in the market in the current season.

One of the main reasons for the drop in international prices is the strong growth in Argentine production, which has offset the Brazilian reduction in global supply. USDA estimates indicate that the 2023/24 Argentine soybean harvest will more than double the previous year's production volume: 50 million tons, compared to 22,3 million tons produced in the 2022/23 harvest. Official Argentine estimates are even more optimistic: a record 56,5 million tons of the grain. This strong increase in Argentine production more than offset the lower Brazilian production, generating a greater surplus of the product on the international market. This has contributed to the reduction in market prices and raised concerns among Brazilian producers.

Argentina’s 2022/23 soybean harvest was severely impacted by a historic drought that affected all producing regions of the country. Annual production fell sharply, from 43,3 million tons in 2021/22 to 22,3 million tons, the worst level in a decade. The drop in soybean production meant a huge financial loss for Argentina. Official estimates indicate production losses of almost 20 billion dollars, which is equivalent to almost 3% of the country’s GDP. This loss worsened the fiscal and monetary crisis that Argentina was already facing.

The return of production and export levels comes at a good time for Argentina: the government of Javier Milei intends to put its accounts in order and rebuild the country's foreign exchange reserves, in order to stave off the crisis of investor confidence and rebalance the exchange rate in order to eliminate the “cepo cambial” (a model of exchange rate control that makes access to dollars difficult, with the aim of trying to curb the devaluation of the Argentine peso).

The goal of rebuilding Argentina's foreign exchange reserves has as a key element the agro-export sector, which has been severely affected by export taxes, the so-called “retenciones” (taxes on the sector's total revenue from exports of agricultural products). In December, Milei sent a bill to Congress that proposed increasing the rates of “retenciones” — soybeans, for example, currently have a rate of 33%. The bill was at odds with what was promised during the election campaign — to eliminate taxes —, generating protests from the sector and ended up not being approved by the Argentine Congress. Such taxation creates a barrier to exports and has been harming the competitiveness of Argentine agriculture for some years now, which to a certain extent has benefited Brazil in the market — the country has been occupying part of the market vacated by Argentina.

Even without being able to raise the tax rate, the agro-export sector should contribute significantly to attracting dollars to Argentina due to the increase in agricultural exports in 2024, driven by high production. If the Argentine government regularizes exchange rate issues and reduces “retenciones”, the country tends to increase its productive investments and become a more competitive player on the global stage, which could be a factor of attention for Brazil, which currently benefits from less competition from its neighboring country in some products that are important to our market, such as meat and soybeans, for example. Argentina's return to the global market, therefore, is one of the aspects that should be closely monitored by the Brazilian productive sector.

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