04.05.2020 (S&P Global) - New Delhi — Argentina's soybean crushing industry can expect sluggish exports in the new marketing season that started in April, led by a series of supply-side bottlenecks that have impacted production, logistics and export prospects of the world's largest soybean products supplier.
Argentina has been facing supply constrains caused by prolonged dry weather conditions, coronavirus-related logistical issues, receding river levels and rising export taxes in recent months.
In the 2019-20 marketing year (April 2020 to March 2021), soybean output was expected to fall 10% to 49.5 million mt due to dry weather in late February and early March, said Eugenio Irazuegui, market analyst at agro consultancy Zeni.
Soybean marketing year in Argentina is considered one year forward due to two crop planting seasons in the country. While the first soy crop is planted in October, the second crop is planted in November, immediately after the wheat harvest.
Argentinian soybean exports in 2019-20 was forecast to decline 37% year on year to 6.5 million mt and soybean meal shipments were expected at 28.4 million mt, down 5%, the US Department of Agriculture said in estimates released late April.
Soybean supply issues could severely impact Argentinian market share in the EU –- the world's top soy meal importer, an agro trader said.
One of the world's largest meat producers, the EU, was expected to import 19 million mt of soybean meal, up 3% year on year in 2019-20, the USDA said.
Soybean meal is used for animal feed production in the livestock and poultry sectors.
The coronavirus pandemic has dented Argentinian supply chain as the country's crushing industry is seen facing difficulties in procuring raw soybeans.
Deliveries of soybean by trucks to processing plants has been severely disrupted as more than 70 municipalities across Argentina are taking measures against the global coronavirus pandemic, which involves controlling the movement of agricultural production by their jurisdictions, the USDA said.
As a result, supply was squeezed during April. On certain days in April, the number of trucks loaded with beans entering into Argentinian ports was 60%-75% down from the same period a year ago, according to commodities transporting firm Agroentregas S.A.
Industry sources expected that at least some processing capacity could be temporarily offline for disinfection in April, May and June, as the number of COVID-19 cases increase in Argentina, the USDA said.
Quarantine steps at Argentinian crushing plants and ports could also support Brazilian soybean meal exports.
The USDA revised up Brazilian soybean meal exports by 100,000 mt from an earlier estimate to 16.3 million mt in 2019-20, citing Argentinian supply issues and currency depreciation.
DRYING PARANA RIVER
Water levels on all major rivers, including the Parana, have fallen significantly due to prolonged drought in the region, which has affected port operations, Bolsa de Comercio de Rosario said in its April report.
Rosario port, which handles about 95% of soymeal and soybean oil shipments from Argentina has scaled down its operations, Eugenio said. Ships must complete loads at other terminals and that inevitably increases the logistics costs.
Grain carrying ships need to reduce the loading according to the drop in water level, BCR said.
Despite the peak soy harvest period in Argentina, supply-side bottlenecks has severely curtailed the Argentinian crushing operation.
The country's soybean harvest as of April 29 was 68% through the projected planted area of 17.4 million hectares for the 2019-20, a Buenos Aires Grain Exchange report said Thursday.
In recent days, the country has experienced heavy rains which may increase the Parana's level in three weeks, a market source said. However, until then the crushing industry may have to make do with their existing raw beans inventory.
RISING EXPORT TAXES
A struggling debt-laden Argentinian economy has resorted to taxing the country's soybean sector as a fiscal measure.
Taxes on soybean and soy products were raised 9 percentage points to 33% in March, limiting farmers' soy sales intentions.
Farmers will face even lower local prices as exporters and processors pass on the effect of lower global oil prices and higher import taxes, the USDA said.
Consequently, farmer selling was expected to be slow in the next few months as they will choose to store their soybeans in silo-bags and instead sell newly harvested corn to cover expenses, it said.
Typically, 92%-93% of Argentinian soy meal production is exported but the export tax increase can see that percentage below 90% this year, said Pete Meyer, head of grain and oilseed analytics at S&P Global Platts.
S&P Global downgraded its sovereign foreign currency credit rating for Argentina in April to selective default, which signaled the weak outlook for the country's economy.
Argentina may have to continue with tough fiscal measures to revive its economy, which is expected to decline 5% in 2020 due to COVID-19, a market source said.
High export taxes on Argentinian soybean products are here to stay, which could impact their competitiveness.
With majority of soybean farmers reluctant to sell in a lower production and high tax environment, Argentina's crushing industry may have to be dependent on imported beans during coming months, sources said.