For him Argentine countrysideLately, all the news that comes from abroad is bad. There is no longer any room to celebrate the rise in the international price of Argentine export products, because petroleum inputs increase at a faster rate.
And, while it is true that the prospect of a brake on the rise in fuel prices – which make freight and logistics operations in ports more expensive – brings relief, that news was overshadowed by the relative rise in the cost of fertilizers.
When a global détente occurred due to the dialogue between Iran and the United Stateswith the probable reopening of the Strait of Hormuz, a combination of movements occurred that confirms the bad weather. While oil showed a noticeable drop of 13% Regarding its maximum levels from a week ago, urea has hardly moved, and registers a minimum drop of 1.8%.
Speaking in plain English, the ton of urea, a basic input for the fertilization of the new agricultural campaign, It continues to be 51% above the price before the conflict in the Middle East. Meanwhile, the price of soybeans in the Chicago market, although it has had a brief rebound with the news of recent days, is still $4 below the peak reached at the end of March.
In summary, what truly matters to the Argentine agricultural producer, which is the profit margin, continues to show a discouraging outlook: You need to sell 1.65 tons of soybeans to buy one ton of urea. Before the conflict, that ratio was 1.12.
Of course, these figures are those that arise from the comparison of international prices. When they are corrected for the effect of the 24% withholding on soybean exports, then the cost of the input becomes even higher: each ton of urea is equivalent to 2.17 tons of soybeans placed in the port of Rosario.
Caputo celebrates but producers see shrinking margins
This means that, in contrast to the optimism that the government shows about the export potential of Argentine agriculture for this year -Toto Caputo estimates sales of US$42,000 millionwhich implies an increase of 26% compared to last year – in the countryside there is a long way from a euphoric mood.
Quite the contrary, complaints abound about the thinning of profit marginswhich puts those producers with the greatest weight of financial obligations at risk.
This difference in visions is evident with the low level of the soybean harvest that has already set a selling price. For agricultural business analysts, it is a symptom that there is once again pressure from the sector for a tax relief measure.
In extreme cases of reduced profitability, there is the “solution” of giving up part of the investment in fertilizers, something that experts advise against because it is, in reality, a deferred cost in the future. It happens that applying little fertilizer to the soil means that The next campaign will have a lower yield. In short, the savings in financial costs today would be paid for with a lower volume harvested next year.
The bad news is that the situation still has room to get worse, because while the outlook for the international price of soybeans indicates a drop, the cost of fertilizers is much more rigid.
Even before the Middle East conflict broke out, experts were reporting a low global level of fertilizer production. Argentina is a producing country, but it has a long way to go to become self-sufficient: it barely covers 20% of the needs of the domestic market, which means that it is impossible to decouple from international prices.
Middle East worsens fertilizer crisis
The war situation has worsened the situation, especially if one considers that Iran is the fourth largest producer of urea, and has also just bombed a production plant in Qatar.
A report from the firm IF Engineering in Fertilizers is eloquent regarding market expectations: “The crisis in the Middle East continues to impact costs and logistics, raising key inputs such as sulfur and ammoniawhich maintains high prices despite lower commercial activity. “Export restrictions in China and logistical constraints in Saudi Arabia reinforce global shortages.”
Meanwhile, a report by Marianela de Emilio, an Inta expert, shows how Argentine soybeans are in one of their worst moments in the last decade in input/product relationship. The situation is particularly serious when it comes to paying for diesel oil, urea and diammonium phosphate.
“To make investments in capital goods, such as a tractor or a silo, Today we need twice as many grains as two years ago“, graphs De Emilio, who warns of increasingly thin margins in the agricultural business.
And it poses a declining scenario for the coming months, with the probability of a 15% drop in grain prices that Argentina exports, and a 30% increase in the cost of fertilizers.
With that perspective on the table, the advice that consultants give to producers who need to buy fertilizers is to secure the sales prices for the next crop now in the futures market, so as not to suffer unpleasant surprises.
Soybeans lose momentum due to greater global supply
On the other side of the counter, the price of soybeans does not seem to have the strength to sustain its current level of US$427, an excellent price compared to last year, when global supply was lower.
Not only Argentina – with its forecast of 49 million tons of soybeans– benefited from the good weather and obtained a good harvest. Brazil, the main world player, will raise a “super harvest” of 180 million tons while the United States – according to the Department of Agriculture’s estimate – will harvest 121 million tons of soybeans, a volume 4.4% higher than the last harvest.
In contrast to this greater supply, demand is weaker due to geopolitical tensions between China and the United States.
In this context, an expected announcement was made in recent days: the Trump administration confirmed the use of biofuels, as a way to mitigate the rise in the price of gasoline in the US market. It is an issue of high political sensitivity, and even more so this year, when the mid-term legislative elections are being held.
Corn becomes the star crop of the year
What does this mean for Argentina? In principle, it can help support agricultural prices, although analysts see a much greater impact on corn than on soybeans.
Ethanol is a byproduct of corn starch, which implies that, with this measure, there will be greater demand for this crop. Since the beginning of the conflict in Iran, The price of corn skyrocketed by US$15 and the price remains sustained, especially after the massive bet of investment funds in commodities.
But, in the Argentine market, what is most influencing corn to be the star crop of the year is the change in the meat business scheme, where it became more convenient to slaughter heavy animals than light ones.
With a task that fell 10% in a yearprices in the ranch market remain high, while demand for meat is on the rise. Consequently, if before the norm was to send cattle weighing 300 kilos to slaughter, now they are sent to the slaughterhouse with more than 480 kilos.
And the key fact is that cattle are fattened with corn, which although it has risen in the world market, It’s cheaper than ever compared to meat. To put it in numbers: historically, to buy 10 kilos of corn, the equivalent of one kilo of steer was needed. Today the cost is half a kilo of steer. This leads to a high proportion of the corn campaign, instead of being exported, being sold to local livestock producers.
