BUENOS AIRES, ARGENTINA — Argentina’s 2015-16 soybean production area is unchanged at 20 million hectares with production forecast at 57 million tonnes, the U.S. Department of Agriculture (USDA) reported on Oct. 16. Lower soybean area in less profitable regions is expected to be offset by a shift to soybeans from planting corn and wheat. Low economic returns, a strong currency, and political uncertainty, are exerting downward pressure on overall grains and oilseed area. The 2015-16 sunflower production is revised up significantly to 3.2 million tonnes based on favorable conditions.
In 2015-16, soy producers face significant challenges including lower prices, high production costs, an approaching El Niño weather pattern, and an uncertain political climate. Based on analysis and insight from industry contacts, production and trade for 2015-16 are left unchanged. The Foreign Agricultural Service in Buenos Aires said it will continue to monitor the situation as the season progresses.
The 2015-16 soybean production is a 6% decline from 2014-15 as yields are expected to revert to trend levels. At the onset of the season, many producers (particularly those renting land) are facing low to negative margins as a result of lower prices, high production costs – energy, taxes, labor, and transportation – high export taxes, and a strong local currency that is eroding competitiveness relative to other exporters.
According to the USDA, soy producers in the main production zone (composed of areas in Buenos Aires, Cordoba, Santa Fe and Entre Rios provinces) will see roughly a third of revenues going toward export taxes, with a significant portion of the remainder going to transportation and local taxes. In production areas far from ports such as Salta province, transportation costs can take up 40-45% of revenues. Hailed as the new frontier for crop production, the provinces of Salta, Tucuman, Santiago del Estero and Chaco face higher transportation costs in order to transport product across the country by truck to the port of Rosario, a trip of over 600-1,000 kilometers.
The situation is especially difficult for producers who rent land. Those farmers who produce on their own land are in better position but will still encounter potential tight margins. A recent report estimates that the government collects over 94% of net profits in the agricultural sector. This includes the sum of taxes, including provincial and export duties, and intervention costs – the costs of delayed export licenses. Due to the confluence of these factors, producers will lower their use of technology inputs – fungicides, fertilizers, inoculants, and high quality seed – and use less-expensive and lower-quality substitutes in order to curb costs.
The decreased use of inputs normally leads to lower yields; however, producers believe El Niño which normally delivers more moisture, will offset these losses. The USDA estimates yields will average around 2.9 tonnes per hectare which is close to trend levels. It is expected that some lower areas may be negatively affected by El Niño, where excess rainfall could result in flooding. On the other hand, better yields in non-affected and more productive areas are expected to more than offset any potential area lost due to flooding.
Due to the low profitability of grains in 2015-16 season, the total wheat and corn area is expected to decline by 1.5 million hectares. This significant decline is due to the various economic constraints noted earlier, and concerns on continued export license allocation (ROEs) delays. A large portion of the area lost to corn is expected to be allocated to soybean production due to its lower input costs. The area not planted to wheat will most likely be planted directly to first soy crop, which normally yields higher than soy planted after the wheat harvest. Accordingly, soybean area harvested is left unchanged at 20 million hectares, an increase of 3.6% (700,000 hectares) compared to the year before.