Argentina's agriculture players bullish Milei policies will bolster sector

Representatives of Argentina’s agricultural sector are optimistic that the victory of Javier Milei in the country’s presidential election on Sunday will lead to reforms that should bolster crop production and exports.

Milei has pledged to make radical changes to jumpstart growth in the country that’s suffering from numerous woes including triple-digit inflation, with the closing of the central bank, dollarization, spending cuts, privatization and leaving the Mercosur (South America’s Common Market) deemed to be priorities.

On Monday morning in an interview with a local radio station, Milei reaffirmed that he would attempt to enact these policy changes when he takes power on December 10.

Most Argentinean market players reached by Fastmarkets expect positive changes for the agriculture sector will start with dollar devaluation.

“This should help out production and boost farmer selling if the spread between the official and real foreign exchange rates becomes lower,” Pablo Santamaria, a broker at Agrosud SA, told Agricensus.

Argentina’s government and people have long struggled with the decline of the peso and low foreign exchange reserves by implementing multiple exchange rates and capital controls, which has been a headache for exporters.

Currently, the official dollar exchange rate is at 668 pesos while in the parallel market, dollar blue is worth 950 pesos.

“If this devaluation occurs, the producer will triple his earnings, which may have an impact on wheat and barley sales, which are practically frozen, and also on soybean and corn sales if producers have enough product to sell,” analyst Javier Preciado Patiño told Agricensus.

Having a fluctuating dollar could make products more expensive for the consumer, as well as increase inflation, which is already running at a 140% annual rate.

"At first it will be difficult, but I believe that growth will settle down over time," said Patiño.

Analysts and brokers caution that Milei will be unlikely to be able to implement all the proposed changes because his Liberty Alliance is expected to have seven out of 72 seats in the Senate, and 38 of 257 seats in the Chamber of Deputies.

“I don't know to what extent his lack of congress member support should jeopardize his agenda,” Victor Martins, the Latin America risk manager at Amius Ltd, told Agricensus.

Argentine analysts said that they believe that despite threats to leave Mercosur and switch the country's alignment from China and Russia to the US, trade relations won't see any changes in the near term.

"At first, the end of Mercosur (or Argentina leaving the economic group) could harm Argentine agribusiness, as it would take away preferential access to Brazil's market, which is huge, but after the initial impact, everyone would win," says Daniele Siqueira, an analyst from Agrural.

"As an adherent of the free market in an even more radical version than we usually see, he would leave Argentina's private entities - producers, exporting companies, etc. - would be free to negotiate with the countries they wanted, on the terms they wanted, even without being 'friends' in diplomatic relations," she told Agricensus.

Siqueira believes that a free-market aligned government, which Milei's administration is expected to be, should make Argentine agribusiness more competitive, due to the removal or at least reduction of export taxes and controls on export volumes, as well as other economic measures.

"In this scenario of a more competitive Argentina, Brazil will have to work harder to get our products onto the international market, but I don't see Argentina's improvement as a threat to Brazil," Sequeira added.

An Argentine broker said that Milei's promised privatizing of state-controlled energy company YPF might come with an increase in the use of biodiesel.

Argentina’s agricultural sector is suffering after a drought during the previous crop year slashed output, and the slow arrival of rains during the 2023/24 marketing has led to reductions in wheat production estimates by government agencies and exchanges over the last month.

Rosario Grains Exchange (BCR) cut its estimates for Argentina’s 2023/24 wheat crop by 1 million mt to 13.5 million mt, on November 8, while the US Department of Agriculture (USDA) trimmed its projection by 1.5 million mt to 15 million mt in the most recent update to the World Agricultural Supply and Demand Estimates report on November 9.