February 21 – How Many Soybeans Will Argentina Likely Grow?

Argentina has led in terms of soybean production and export.

Dry weather and protectionist policies could damage the future Argentine soybean yield though.

Argentina has been one of the leading nations in terms of soybean production and export, along with the United States and Brazil.

However, dry weather and a push for a reinstating of protectionist policies could damage the future Argentine soybean yields.

The effects of Argentine yields impact their other two soybean competitors in both bullish and bearish ways. 

Undoubtedly, Argentina has been an important player in the soybean market.

Last year, in the 2016/17 crop year, soybean production in Argentina came in at 57.8 million tonnes and although they exported just 7 million tonnes of the oilseed, they did ship out 31.3 million tonnes of soymeal and 5.4 million tonnes of soy oil. 

Put another way, Argentina is a major player in the soybean market not just because they’re the #3 producer in the world, but they’re the #1 exporter for processed products.

Their soybean production is important in the global market because they retain the high protein content that the United States is lacking (something we discussed recently as relates to China and Brazilian soybean trade). 

It also provides cheap soyoil for biodiesel production.

However, beacuse President Macri depends significantly on soybeans as a source of his governments revenues, could we see some further political intervention this year in Argentina?

For example, might exports of processed goods be limited and/or taxed a higher rates?

Now some people may take about the long-term impact of soybean production South America, but the market doesn’t really care about how many acres of rainforest are converted into farmland.

As heartless as that might sound, the market prices out an equilibrium for supply and demand. The only thing it might account for is an government taxes put on newly-broken farmland.

However, we can’t see that happening any time soon.

P.S. check out our mathematical walk-through of what a few different scenarios of Argentine soybean production could end up being. 

 

 

Argentine Soybean Production, Yields Face Uncertain Future

Behind the United States and Brazil, Argentina produces and exports more soybeans than any other country in the world. In 2017, the country produced 57.8 million tonnes of soybeans and exported 7 million tonnes. Argentina’s prominent role in world agriculture has only grown as reformist President Mauricio Macri has rolled back trade restrictions put in place by his husband-and-wife predecessors Nestor and Cristina Kirchner.

Nonetheless, the Argentine agricultural sector faces two main challenges. First, dry weather threatens yields for corn and soybeans. Second, President Macri’s political opposition would like to reinstate Argentina’s protectionist trade policies. Over the long term, ruinous tariffs would damage trade prosperity more than the recent yield-limiting drought conditions ever could.

Soybeans in Argentina

Soybean production in Argentina has skyrocketed since 2000, rising from 21.2 million tonnes to 61.4 million in 2015. China’s epic boom in protein demand occurred simultaneously. The feed ingredients supplied by Argentine farms kept Brazil from slashing and burning even more of the Amazon Rainforest to meet Chinese demand. Soybean expansion came from both increasing acreage and improved yields.

With the election of Nestor Kirchner in 2003 on a populist-leftist platform, Argentina returned power to the Justicialist Party, which was founded on the “Third Way” pioneered by Juan and Eva Peron. The Justicialist Party and the Kirchners largely defined themselves through their opposition to neoliberal reforms taking place elsewhere in the region. As the Kirchner regime advanced its collectivist/Peronist policy through the 2000s, the “golden goose” of agricultural exports became too appealing to ignore. As a source of desperately needed government revenue, Argentina’s farmers suffered from detrimental levies, fees, and taxes. Eventually, they were in open conflict with the government. As the suboptimal Kirchner policies made defaults on government debt more likely, local currency plummeted. This created a negative feedback loop causing farmers to hide their products to avoid taxes and conversion of their crops to declining Argentine dollars. In turn, this increased the likelihood of default causing the currency to implode further.

Government authorities ended up completely unable to collect reliable information from farmers. As a result Argentina’s Ministerio de Agricultura, Ganadería, y Pesca (MAGyP), analogous to the United States Department of Agriculture (USDA), gained a reputation for supplying incorrect data, which it more or less unfairly maintains to this day. Inspired by this analytic challenge, and fresh from our success with US corn yield modeling, Gro Intelligence decided to model Argentine soy yields to provide subscribers with an impartial view on the sometimes mysterious domestic situation.

Gro Yield Model

Taking a similar approach to that of our effective US corn model, we’ve adjusted from a simple linear trend yield using objective satellite data on greenness, temperature, and rainfall. We modeled yield for each of the 464 relevant Argentine sub-national, sub-provincial political units. Whereas we felt comfortable using USDA planted acreage data to aggregate our US county-level yields up to the national level, we didn’t have reliable ground-based planting estimates for Argentina. As a result, our geospatial scientists further used satellite images to classify cropland based on its appearance. Given a set of acreage estimates, we could use our district yields to arrive at a national yield number. That number (2.67 tonnes/hectare) currently appears on Gro’s website and updates weekly.

Due to large and visible dry patches in the three largest producing provinces (Buenos Aires, Córdoba, and Santa Fe), our yield is well below last year’s yield (3.15 tonnes/hectare) and the USDA’s yield suggested by its production estimate (2.88 t/ha) released in the latest World Agricultural Supply and Demand Estimates (WASDE) report. If realized, such a low estimate would lead to higher prices for soybeans worldwide.

Protein deficiency

The status of Argentina’s bean crop affects the livestock industry even more than production numbers alone would indicate. The United States, the world’s largest producer, currently has a problem with declining protein levels in soybean meal produced from US beans. Animal muscle, or meat, requires protein to grow, and much of that protein comes from soybean meal. If US protein levels remain low, Brazilian and Argentine meal will command a premium on world markets and a yield shortfall in either place will have an even larger impact.

Scientists have not yet determined the exact mechanisms leading to the US protein suppression. Fingers point at the use of GMOs, which also dominate Argentine production. The increased use of chemicals on herbicide-tolerant GM soybeans can reportedly kill or suppress bacteria called rhizobia. In a symbiotic relationship with soybeans and other legumes, rhizobia help fix atmospheric nitrogen (N2) at the root level, which enables protein synthesis in the plant. Another theory holds that very high yields in the US mean that an acre worth of sunshine and soil support the development of so many plants that each plant converts less energy to nutrients. Whatever the cause, South American beans seem to be maintaining their high protein content and producing great soybean meal for livestock.

Green Argentina

Argentine soybean agriculture also acts as a sensible alternative to further destruction of the Amazon rainforest. Deforestation driven by soy goes beyond land cleared for planting. Brazilian infrastructure has yet to catch up to the rise of soybean production and the government is struggling to close the gap. Paved roads, a recently approved railroad, and a proposed 1,600 kilometer waterway development across the Amazon will all significantly alter and negatively impact the environment. Despite recent victories such as the Soy Moratorium and the reinstated protection of an Amazon reserve, the Brazilian government continues to support plans that will lead to increased deforestation in the face of a global outcry.

Argentina, on the other hand, plants soybeans on some of the best farmland in the world—rich “pampas” plains. In many cases, pampas acreage is less of a carbon sink and oxygen producer than the soybean cropland replacing it. With a given amount of additional soybean demand in the world, it seems better that production should take place in Argentina rather than Brazil. Government obstacles in front of farmers can indirectly, but materially, worsen the rainforest’s condition in this way.

Biodiesel dispute

After the US enacted its massive Renewable Fuels Standard, biodiesel manufacture and use ballooned from 260 million gallons in 2006 to 1.6 billion gallons in 2016. This rapid growth took place in an extremely forgiving environment. The US provided $1 per gallon (around 30 percent) of tax credit, a costly policy that ended in 2016. Soybean oil most commonly acts as the feedstock for biodiesel production due to its low cost and plentiful supply.

Some areas of the US can get Argentine soybean oil more cheaply than domestic product due to a maze of regulations and subsidies. The US and EU have accused Argentina (among others) of “dumping” their soyoil on world markets and have enacted retaliatory tariffs. In an attempt to appease trade partners, President Macri has raised biodiesel export tariffs. This action stands out as the one restrictive economic measure Macri has taken, but it’s a clear attempt to encourage the relaxation of extreme punitive tariffs for an ultimate net gain to Argentine soyoil exporters.

Conclusion

Argentina remains the third-largest producer and exporter of soybeans in the world, and has likely become entrenched in that position. In the fierce three-way competition with US and Brazilian bean exporters for business, one player’s misfortune results in benefits for the other two. The US soybean protein deficiency problem has boosted demand for South American production, but now dryness in critical Argentine cropland could mean that some demand will return to North American sources. Any failure or reversal of Macri’s reform efforts would also have bullish consequences for other producers, as Argentine farmers resume their hunkered down posture. In any scenario, Gro Intelligence’s subscribers will have a front row seat for both the development of the crop and any shifts in export patterns.

H/T: Gro Intelligence
About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.