High soymeal prices to offset worst effects of drought in Argentina

High soymeal prices and good soybean stocks will partially offset the economic damage caused by a drought in Argentina’s key state of Santa Fe, according to a research report by the Institute for the Study of the Argentine and Latin-American Reality (IERAL).

Argentina’s worst drought in decades has seen analysts slash crop expectations to 42 million mt compared with last year’s crop of 57.5 million mt.

The loss in revenue for the cash-strapped country, which is undergoing economic reform, is expected to be offset 86% by higher international soybean prices, according to economist Juan Manuel Garzon, with GDP falling as a result.

However, the province of Santa Fe – which houses 86% of the country’s crush capacity and is home to the nation’s sprawling port complex including Rosario – “could have an ace up its sleeve” as its crushers will keep running at a “relatively stable grinding level” and help fill state coffers, IERAL said.

With crush rates estimated at around 43 million mt, either stocks or imports will have to fall or exports rise.

Argentina’s annual year-end soybean stocks are estimated at 23.4 million mt, 5.3 million mt higher than stock levels at the start of the previous season, and 10 million mt more than the inventories during the past two droughts (2009 and 2012).

The institute compared three scenarios and concluded that a fall in the state’s gross product would only materialise in the most pessimistic scenario, based on a 40.1 million mt crop and average historic crush rates.

In that scenario, Santa Fe’s gross product would fall just 0.5%.

Other scenarios predict that the lower harvest levels could have a net benefit on the state, if not the rest of the country.