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ARGENTINA | 27-07-2019 09:16

Argentina’s next leader will get a commodities boost in 2020

Tough economic times most likely lie ahead – but surging farm and oil production could offer a helping hand to the next occupant of the Casa Rosada

Argentina’s next leader will have a tough task sorting out a stumbling economy, but surging farm and oil production could offer a helping hand.

The nation’s farmers are forecast to push harvests to new highs in 2020, bringing in much-needed dollars. Meanwhile, rising oil production from shale fields should bolster fuel exports, reining in an energy trade deficit.

The prospect for growth bodes well for both marketfriendly President Mauricio Macri and opposition leader A lber to Fernández, who would probably shift Argentina to the left. They face a critical primary vote on August 11 before the October presidential election.

CROPS

The wheat crop begins to roll into ports at the end of the year. It’s set to top 20 million metric tons for the first time.

Then there’s corn. Growers haven’t begun planting the next crop, but a rally in prices and an export tax that’s just a third of the levy on soybeans mean sowings may expand. Production could subsequently reach a record 51 million tons, according to the Rosario Board of Trade. More corn will reduce the share in fields of soybeans, Argentina’s biggest farm export. Still, the US Department of Agriculture sees a bumper soy crop of 53 million tons.

Farm exports, which are priced in dollars, are key to shoring up the fragile peso,which in turn helps to control high inflation. Shipments are also a boost for tax revenue.

WEATHER

Farming success depends on the weather. Fortunately for the next president, who will be sworn in on December 10, forecasters are upbeat about the 2019-2020 season. That’s because a neutral weather pattern or a weak El Niño are set to prevail over a strong El Niño or even-moredestructive La Niña. Both of the former scenarios would bring mild conditions, conducive for plants on the Pampas growing belt.

Look no further than the current calendar year to see the results of good weather. Exports of crops that benefitted from the right mix of temperatures and rain are predicted to reach US$23.1 billion, according to Central Bank chief Guido Sandleris. That’d be the most in three years.

SHALE

Argentina’s burgeoning shale industry is also boosting the outlook in the commodities sector.

Fuel exports next year are forecast to soar by 20 percent to US$4.7 billion, according to Daniel Gerold, head of G&G Energy Consultants in Buenos Aires. That’s thanks to increasing oil output in Vaca Muerta, where Argentina’s efforts to replicate the success of the Permian Basin in the US are finally yielding some results.

That will help cut a trade deficit for fuels that Gerold sees finishing this year at US$1.3 billion. By 2021 there could even be a surplus, he said.

ENERGY TRADE

Argentina has been leaking billions of dollars a year for nearly a decade to import energy like natural gas, putting huge pressure on the peso. Getting back to being a net exporter of fuels would contribute to stabilising the currency in the long term.

Some analysts are really bullish. As shale oil production rises, Argentina’s total energy trade balance, which includes electricity, could shift by as soon as next year to a surplus of as much as US$1 billion from a deficit of US$500 million forecast for 2019, according to Ricardo Arriazu, an economist who runs his own consultancy firm and specialises in oil.

That’s in line with government forecasts. Argentina may achieve equilibrium in energy trade this year, according to Energy Secretary Gustavo Lopetegui. That would mark the first time out of the red since 2010. By 2021, the nation could run a US$2 billion surplus, Lopetegui said.

INVESTMENT

Fulfilling the potential of Vaca Muerta requires billions of dollars a year of investment. But big spending won’t happen until country risk falls from current heights and the government ensures clear and consistent rules.

That, in turn, depends on who wins the elections. Argentina’s bond yield spreads seem to imply a 60 percent chance of re-election for Macri.

“Vaca Muerta can solve Argentina’s insolvency problems,” said economist Arriazu. “But it’ll only grow if the right policies are kept in place.”

by BY JONATHAN GILBERT

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