Business & Economy

Sky-high grain prices provide lift to struggling Argentine economy

Buenos Aires, May 21 (EFE).- Sky-high grain prices on global markets are helping to alleviate a challenging monetary and fiscal situation in Argentina, which is poised to receive big windfall revenues this year from its farm exports.

Although the country’s 2020-2021 grain harvest is expected to be lower than the previous one in terms of volume, the country is benefiting from a multi-year high in grain prices, which have moved upward steadily since last July.

Production of corn, one of the South American country’s two main crops along with soybeans, is forecast to fall from the previous harvest to 46 million tons, according to the Buenos Aires Cereal Exchange.

But the price of that crop is at its highest point since 2012 – roughly $300 a ton – and is nearly double the level from 12 months ago.

Soybean output, meanwhile, is forecast to come in at 43 million tons, down from an earlier forecast of 46 million tons.

Even so, soy prices hit $610 per ton in mid-May, up around 80 percent from a year ago and a level not seen since 2012.

Higher prices are being driven both by robust global demand and climatic factors that are lowering output in the world’s leading grain-producing nations, including Argentina, the planet’s No. 1 exporter of soybean oil and feed and No. 3 corn exporter.

“We’re continuing to have a supply shortage, at least in the short term. The climate in the United States in July and August will determine the price trend,” Catalina Ferrari, agricultural market analyst at the AZ Group consulting firm, told Efe.

The sharp rise in prices translates into higher farm export revenues for Argentina, a huge relief for a country that has been in recession for the past three years and is struggling with macroeconomic imbalances.

According to estimates from the Mediterranean Foundation’s Institute for the Study of the Argentine and Latin American Reality (IERAL), Argentina could bring in $35.9 billion from exports of grains and their derivatives this year, up $9.6 billion from 2020.

That increase in hard currency revenues will help boost the Central Bank’s reserves, which now stand at $41.5 billion; reduce expectations about a potential new peso devaluation; and obviate the need for more intervention in foreign currency markets to manage the peso’s value relative to the dollar.

Increased export revenue also will boost the amount of money the government receives from exporters for the right to ship grains and their derivatives internationally, an amount IERAL expects will climb from $5.8 billion in 2020 to $8.6 billion this year.

The higher prices represent “fiscal relief,” Leonardo Piazza, director of LP Consulting, told Efe. He cautioned, however, that grain prices are only momentarily high and predicted that they will “stabilize and weaken.”

He also warned about a potential inflationary effect on food products.

The windfall grain export revenues come at a time when the country is striving to reduce its primary budget deficit (excluding interest payments on debt) from 6.5 percent of gross domestic product in 2020 to 4.5 percent of GDP this year, a task made more difficult given the spending needed to alleviate pandemic-triggered economic suffering.

The ruling Peronist party also may be reluctant to pursue a belt-tightening strategy considering it faces legislative elections in five months. EFE

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