January 20, 2022 5:05 pm

Many doubts and few certainties condition the evolution of grain prices

The local market is going through one of the worst droughts in history, the worst drop in the Paraná River in 75 years, the already irreversible drop in soybean and corn production, the non-agreement with the IMF and a very accommodating USDA report for soybeans from Brazil. In this campaign, and at this point, we see that the drought is not only in Argentina, it is a phenomenon of regional scope. Paraguay has already lost 40% of its soybean production and private analysts today estimate 6 million tons, against the 10 million that were predicted at the beginning of planting, when such a disaster caused by lack of rain was not foreseen.

In Brazil, private sources are estimating a soybean production of 130 million tons versus 138 million for the 2020/2021 harvest. Instead, the USDA is now projecting 139 million tons, against the 144 million estimated in its December report. The entity was very optimistic in its December production estimate and now it does not know how to whiten the losses and decides to make gradual adjustments.

The main states that suffered great losses due to the severe drought were those in the south, Rio Grande do Sul, Paraná and Santa Catarina. At this point, the losses are irrecoverable and private analysts estimate losses of 10 million tons, in contrast to the 5 million that the USDA calculated on Wednesday.

The fall of the Paraná River, considered the worst in 75 years, is a consequence of the lack of rain in the tributary basin of the Waterway and has a direct impact on the main export pole of agricultural commodities in the world. As a first consequence, the drop in draft depth, which prevents ships from leaving with a full load, having to fill their warehouses in the southern ports, Bahía Blanca and Necochea, or in terminals in Brazil or Uruguay. The main affected products are oil and flour. This situation causes an increase in export operating costs. This cost overrun usually translates into a lower price for producers, a fact that is not happening at the moment due to the lower estimated production, both of soybeans and corn.

Speaking of estimates, this week the Rosario Stock Exchange (BCR) threw a couple of lightbulbs in the market, moving away from the usual caution of said institution in matters as relevant as production estimates. The BCR erased at a stroke 8 million tons of corn and 5 million soybeans, as the first direct consequence of the drought on expected yields. We do not judge whether the estimate is correct or not, the weather and the climate in the coming weeks will tell, but if it is true, it will undoubtedly have a direct impact on the volume of final production, exportable balances and foreign exchange earnings.

At the close of this column we still did not have the local market’s reaction to such a cut, mainly in the case of corn. But we did see that Chicago behaved with drops of 20 points in soybeans, equivalent to more than 7 dollars per ton, as if the drought in South America did not exist or as if it had rained throughout the region.

Finally, the lack of agreement with the IMF generates more uncertainties than certainties, entering a cone of shadows of unforeseen prediction and a difficult exit.

The author is president of Pablo Adreani & Asociados


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