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Argentina Agribusiness Report Q1 2012
Business Monitor International, Jan 2012, Pages: 71
Business Monitor International's Argentina Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on Argentina's agribusiness service.
BMI View: Even though the government is continuously intervening in the industry (which can distort production incentives), Argentine agriculture output is one of the world's strongest, running a surplus in virtually all commodities. We see a particularly strong wheat and corn output as high prices have encouraged farmers to plant more of both crops, at the expense of soybeans, for which we still forecast production to increase. On livestock, we forecast the poultry sector to take over the more traditional beef sector in the medium term because of increased investment in the sector.
Key Trends
- Wheat production growth to 2015/16: 21.6% to 19.6mn tonnes. This will come from increased plantings as prices stay high by historical standards, as well as booming export demand.
- Poultry consumption growth to 2015: 25.6% to 2.0mn tonnes. This will be due to increased
consumer health-consciousness, as well as the lower price of chicken compared to beef and pork.
- Soybean production growth to 2015/16: 54.3% to 78.1mn tonnes. This will come on the back of
higher yields, in order to meet increased export demand, especially from emerging markets, as well as domestic demand from the livestock industry.
- 2012 Real GDP Growth: 4.1% (down from 7.0% in 2011; predicted to average 4.2% from now
until 2015/16).
- Consumer Price Inflation: 19.5% year-on-year in 2012 (down from 21.0% y-o-y in 2011).
Industry Developments
The recent government announcement of an additional 2.7mn tonnes of wheat for export from Argentina in 2010/11 confirms that the domestic market will be well supplied that year. In fact, we estimate wheat production in Argentina to reach 15.1mn tonnes in 2010/11, 2.7% higher than the 10-year average of 14.7mn tonnes. This should take the country's wheat production surplus to 9.1mn tonnes in 2010/11, a 74.6% increase compared to 2009/10. Because of high ending stocks at 1.7mn tonnes in 2009/10, we see the country's export capacity reaching 10.8mn tonnes in 2010/11, which is only slightly lower than the recent government's estimate of 11.1mn tonnes.
The performance of livestock equities in the Americas has diverged significantly and we expect this trend to remain in place. We believe that the large divergence between equity returns in the year-to-date can be explained by the amount of leverage that companies have taken on in recent years and differences in profitability. Indeed, US-based livestock companies such as Tyson Foods (up 24%) and Smithfields (up 36%), as well as Brasil Foods (up 46%), which have much lower levels of debt and superior profit margins, have outperformed Brazilian based Marfrig (down 54%), Minerva (down 18%), JBS (down 14%) and Canadian Maple Leaf (down 12%).
Growing demand from Asia combined with improving returns should lead to a continued rebound in Argentine dairy output, which fell in the wake of a drought during the 2009/10 season. Good weather and strong farmgate prices should also benefit a sector that is one of the world's largest whole milk powder exporters, along with New Zealand and Australia. Even though weather had improved at the start of the 2010/11 season, farmers have only recently started expanding their herds and purchasing new equipment in the wake of moderating grain prices. However, with high production costs and barriers to entry, the sector is unlikely to challenge the grains sector in terms of export value.
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