AGRICULTURE-ARGENTINA: Price Rally Gives Little Cause for Hope

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Aug 7 2001 (IPS) - The recent rise in the international prices of grains and other farm products might look like an oasis in the midst of Argentina’s prolonged recession, but experts warn against false hopes.

The prices of soy beans, corn and cooking oils have rallied due to not entirely accurate forecasts of drought in the United States, which was to diminish yields in that country. But farmers and analysts say the mirage will soon vanish.

Argentina, Brazil and the United States are the world’s top producers and exporters of soy beans and cooking oils. They are also at the head of the list of producers of corn, wheat and other cereals, basically competing for the same markets.

After a slump in Gross Domestic Product (GDP) for three straight years, Argentina, which finds itself in the grip of a profound financial crisis, has placed its hopes for recovery on agriculture. The government, keen on stronger inflows of hard currency, hopes the prices of the country’s export commodities will continue to recover.

But the rise in prices is not linked to steady growth in demand, as occurred in southeast Asia in the early 1990s. Nor were projections of a slump in U.S. yields this year entirely correct.

“We are in the season when corn and soy bloom, and when market speculators do as well. At this time of year, they always warn of a possible drop in rainfall that in the end does not turn out to be as bad as expected,” Alejandro Ramírez, an agribusiness consultant, told IPS.

The season when crops flower requires abundant rain. Any forecast of less than plentiful rainfall triggers an increment in the prices of soy, corn and sunflower, which in turn drives up the value of cooking oils.

Alberto Rodríguez with the Chamber of the Argentine Cooking Oil Industry agreed with Ramírez that the more than 30 percent swelling of prices in July was merely a passing phenomenon, and that prices would come down again within the next two months, although perhaps not all the way down to previous levels.

“The U.S. Department of Agriculture said stocks of oilseeds in the well-favoured area of Chicago would be one million tonnes lower than expected, an announcement that coincided with the projections of drought,” Rodríguez told IPS.

He pointed out that the price of corn climbed from 262 dollars a ton on May 22 to 380 dollars at the start of this month. “We could even go above 400 dollars this month, but after that I think values will drop again,” he said.

In the case of soy beans, Argentina’s main export product, the increase from 140 dollars a ton in June to more than 190 dollars in July was good news for a countryside overwhelmed by taxes, lack of access to credit and an overvalued local currency, and exhausted from competing with farmers in countries where agriculture enjoys heavy subsidies.

Ramírez pointed out that at this time of year, the ups-and- downs of the market for grains and cooking oils were influenced almost exclusively by day-to-day weather reports. Many farmers in South America have even increased the area planted, believing that will bring them benefits next year.

A report posted on the Internet website megaagro.com predicts that South America’s soy crop will be five percent higher this year than last, and that the growth will be especially high in Brazil, where the depreciation of the local currency, the real, has fuelled exports.

Rodríguez attributed that rise not only to the prospect of better prices, but also to soy’s high returns and high yields compared to other crops, especially when it comes to genetically modified seeds.

Argentina and the United States are the countries that have planted transgenic crops most widely, with the aim of boosting yields and cutting investment in herbicides, which eliminate weeds but diminish crop vitality.

Those who are confident that prices of grains and cooking oils will continue to go up predict a rise in demand that will go unmet if U.S. yields drop due to weather-related causes, said Rodríguez.

However, the U.S. Department of Agriculture has already stated that it will have to adjust its projections for yields this month, because – as in Argentina – the slump in production will be smaller than expected.