Third year of drought threatens Argentina’s grain exports

Walter Malfatto, 59, lays back on his chair at his ranch, arms crossed as he stares out of the window. Clouds are forming in the sky, but the hopes of what they may bring grow fainter as the hours go by.

“It’s not going to rain today,” he says, resigned to another dry day. Together with his wife, Malfatto farms 770 hectares in Bragado, 220 kilometres south-west of Buenos Aires in Argentina’s rural heartland. “This time of the year, I should be up in the air taking care of my crops,” he says, referring to his crop duster. But the operation is at a standstill. Harvesters and seeders are stowed, and the spray plane remains in the hangar.

“It’s been almost five months now with little to no rain. Not even my dad, who is 86, remembers anything like it.” This year, he lost his entire wheat harvest because of the drought, he says, and fears a similar fate could befall corn and soy, which he will not sow until rain arrives. “I am not taking chances anymore.”

In areas of the Pampas, a vast, fertile swath of land that is the lifeblood of Argentina’s agricultural economy, there are many cases like Malfatto’s. Several farmers reported losing their crops to persistently dry weather, which has lasted for three consecutive years and grown particularly damaging this year. This puts the country’s ability to supply global food markets at risk and adds pressure to a fragile economy with low foreign reserves.

The country is a major player in the global food market. Last year, Argentina’s produce accounted for 8 per cent of global wheat exports, 18.5 per cent of corn exports and 40 per cent of exports of soyabean oil and meals

It produced 22.15mn tonnes of wheat in the 2021-22 season, of which 16.25mn were exported, almost as much as Ukraine’s 18.8mn.

But the widespread effect of the drought this season has led to sharp cuts in estimates. The US Department of Agriculture now expects production of 15.5mn tonnes, while local exchanges forecast as little as 11.8mn.

“The sector is preparing for one of the worst crop years in the last 20 years,” said Cristian Russo, an agronomist at the Rosario stock exchange. “Water reserves are like fuel for these crops, and we are starting the crop year with an empty tank.”

Earlier this year, president Alberto Fernández touted the country’s agribusiness exports as a potential solution for the world’s food problem. But in many cases, poor-quality wheat is thrown out or fed to animals, while dry weather delays the planting of other critical crops.

“Argentina’s wheat harvest is now beyond recovery,” said Enrique Erize, who leads agro consultancy firm Nóvitas. “What is now at stake is corn and soy. And the outlook is not good.”

For three consecutive years, the country has faced unusually dry conditions associated with a triple “La Niña” effect. The global climate pattern is defined by strong winds that blow warm Pacific Ocean water away from South America, resulting in drier, cooler weather.

Farmers are frustrated about a lost opportunity to serve global markets. “Those chances are gone,” said Fernando Rivara, who farms in Buenos Aires province and is president of the country’s federation of grain storage companies.

In addition to the drought, farmers say there is a lack of long-term economic policies to help exports. Chief among their complaints are export levies of 12 per cent on wheat and corn and 33 per cent on soyabeans. In addition, an 80 per cent gap between the official currency exchange rate for exporters and the black market rate deters investment, farmers say.

In September, the government opened a 26-day window for soyabean producers to export hoarded stock at a better rate, resulting in massive sales. But this has now closed.

“With a good harvest, the government makes a case for collecting more export levies,” Rivara said. “But when farmers lose money, it’s like screaming in the middle of the desert.”

Finance minister Sergio Massa last month announced a subsidy of up to 20,000 pesos per hectare for small soyabean and corn producers to spend on seed and fertilisers. “We are facing a unique drought with three years of lower water levels than we were used to,” he said. “This is creating risks and obstacles for us.”

A government spokesman said that even though officials are “aware that a single measure is not enough”, they hope it will help farmers to “invest more”.

A smaller wheat harvest could be a problem for Argentina’s trade balance. According to Fernando Baer, an economist at Quantum consultancy, there is a “high degree of fragility” in the economy as reserves run low. The combination of lower world prices and smaller output will result in a wheat harvest worth $5.5bn, down 36 per cent from $8.6bn in the previous season.

Massa has introduced controls on imports to preserve scarce dollars. The central bank does not report net international reserves but private estimates put them at around $5bn.

Economists fear that if the drought conditions extend into Argentina’s summer, it could affect those harvests too.

“There is a long growing season ahead for soyabeans, but dry weather is delaying planting and could lead to a smaller area,” said Paul Hughes, chief agricultural economist at S&P Global Commodity Insights. “A short crop that reduces the amount of soyabeans for Argentina to process threatens world trade in these critical products.”

In Bragado, Malfatto pulls up barley from the ground, dry earth sliding from his hands. He has 70 tonnes of soy seeds ready. In the past few days, some rains in the region have reignited hopes that the pace of sowing could soon pick up. “We believed this season was going to be an opportunity. But despite everything, I have more faith in climate than in our own governments.”

Source: Financial Times