2014-01-05 20:26:00 - Recently published research from Business Monitor International, "Argentina Agribusiness Report Q1 2014", is now available at Fast Market Research
With an election on the horizon and given continued problems with the economy, the Argentine grain sector will play centre stage over the medium term. With foreign reserves under pressure, grain exports (particularly soybean) will remain vital. Soybean will remain the pre-eminent crop in Argentina over the long term, and we expect the poultry production to show the most promise within the livestock complex. We have downgraded several forecasts, some due to changes in historical data and others due to reduced growth expectations. In particular, we are forecasting lower sugar production in 2013/14 due to poor weather in key growing regions, and see reduced growth in poultry consumption, as demand has risen significantly in recent years, and we believe per
capita growth is slowing. We see potential for a mild rebound in beef production, as sector fundamentals remain challenging despite a significant decrease in grain prices.
Full Report Details at
- www.fastmr.com/prod/759052_argentina_agribusiness_report_q1_2014 ..
* Corn production growth to 2016/17: 8% to 27.9mn tonnes. Our revised growth projections stem from lower average corn prices in coming years along with more substitution to soybean plantings.
* Soybean production growth to 2016/17: 12% to 56.2mn tonnes. Growth will come from increasing export demand for soybeans along with more value-added products such as soybean oil. Soybean crops are also generally less capital-intensive than corn crops due to lower input costs.
* Poultry production growth to 2016/17: 17% to 2.3mn tonnes. Most production growth will come from improving trade demand, as we see comparatively subdued growth in the domestic market.
* 2014 real GDP growth: 2.9% year-on-year (y-o-y) (down from 3.2% in 2013; predicted to average 3.8% from 2013 until 2017).
* Consumer price index (end of period): 17% y-o-y in 2014 (down from 16% in 2012).
We have downgraded our short-term production growth forecasts for the Argentine beef sector, as high inflation and competition from other meats cuts into beef demand. Consequently, despite increasing feeder cattle prices and lower grain prices, sector margins will show only a slight improvement in 2014. Local observers suggest that the herd rebuilding seen in previous years is likely to stagnate unless feeder cattle prices continue to rise. Reduced export potential to key regions in Asia and North American Free Trade Agreement (NAFTA) stemming from a case of foot-and-mouth disease (FMD) will also hamper production incentives. Returns for farmers, despite improving, are being constrained by domestic inflation which has reached a total of almost 90% between 2010 and 2013. Given that roughly half of the total slaughter occurs at the farm level (the other half occurs in feedlots), the rebuilding of cattle herds over recent years is likely to slow beyond 2014 and may cease altogether if margins do not improve.
We have revised up our 2013/14 fluid milk production growth figures, but will keep the figure roughly similar in absolute terms after downgrading our 2013 estimates. We have downgraded our 2013 production growth from 3% to 1%, and we now see fluid milk production coming in just over 12mn tonnes. A key reason for the downgrade has been dry weather in key pasture areas at the start of 2013, leading to poor pasture and feed quality. Higher production costs also reduced profitability at the farm level. By contrast, weather later in 2013 has mostly been favourable, as a relatively mild El Nino pattern is expected in Argentina. This is leading to record high dairy yields even as the number of cows in milk in the country has remained constant in recent years. Moreover, dairy prices remain close to record highs on a 12-month trailing basis, improving profitability. Consequently, we see dairy production growth coming in around 3% year-on-year (y-o-y) in 2013/14, but actual production should remain around previous forecast levels.
Corn plantings in Argentina have begun the 2013/14 season, and we are forecasting a minor decline in production to 26m tonnes. Official forecasts suggest an increase in production to 27mn tonnes, but we forecast a lower total at 25.5mn tonnes. We believe production will improve mainly due to an increase in yields, as we expect the area harvested in Argentina to decline after planting a record 4mn hectares in 2012/13. The record planting area was due to high prices during the 2012/13 planting season in September 2012. Since then, corn prices have collapsed, falling by 40% y-o-y and 30% since the start of 2013. Production costs have risen as well despite falling fertiliser prices, which have also fallen in 2013. Local producers are also reporting a weaker financial situation, reducing planting enthusiasm.
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