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ECONOMY | 28-10-2022 14:39

Third straight drought is upending key planting season in Argentina

A near-relentless drought is jeopardising soybean and corn growing in Argentina. The situation is so dire that the government needs to restrict shipments to ensure wheat-flour supplies at home.

A near-relentless drought is jeopardising soybean and corn growing in Argentina, a gut-punch for global crop markets already on edge from US weather risks and Ukraine disruptions.

Dryness that’s accumulated over three straight years has already shrivelled wheat plants to be harvested in November and December. The situation is so dire that the government needs to restrict shipments to ensure wheat-flour supplies at home. Now farmers on the Pampas, Argentina’s prized fertile plains, are facing one of the toughest starts in recent memory to planting the country’s biggest cash crops: soy and corn.

Argentina is the number one supplier of soy meal for livestock feed and soy oil for cooking and biofuels, so traders from Chicago to Kuala Lumpur are watching closely. So too are government leaders gearing up for general elections next year. That’s because Argentina’s delicate finances depend on exports from next year’s soy harvest potentially worth US$25 billion.

Normally soy planting starts right around now, with three quarters of fieldwork done by the end of November. But many farms are too parched to embed seeds. Rain on the night of October 25 came as a welcome relief. But it largely missed a key slither of the Pampas and farmers that did get precipitation need more.

“These rains barely change anything,” said María de Estrada, a top official in the government’s agricultural emergency department. De Estrada says farmers are undertaking the 2022-23 season in even drier conditions than 2008-09, a parched year of sore memories on the Pampas.

While the La Niña climate phenomenon that’s created the drought will weaken over the southern hemisphere’s summer, it’s still a bleak picture over the next two months, with dryness set to persist for most of the planting window.

In La Pampa Province, only half of grower Julio Reumann’s 600 hectares (1,480 acres) set aside for soy have been wet enough to think about getting seeds in the ground.

Corn planting has also made its slowest start to a season ever. That means maize from Argentina, the third-biggest supplier, will arrive on global markets later than usual as farmers plead for rains to produce a late crop.

If it stays dry, they’ll instead take a chance on soy, which requires less spending on nutrients and can withstand drought better, accentuating a pre-season shift to the oilseed.

“If it rains enough, from here we’ll plant 100 hectares of late corn and a hundred of soy; if it doesn’t, we’ll plant it all with soy,” said Ariel Striglio, a farmer in Santa Fe Province.

Up to an extra 300,000 hectares of soybeans may end up being sown on top of the Buenos Aires Grain Exchange’s current national estimate of 16.7 million hectares, said Martin Lopez, a prognosticator at the bourse.

Cold fronts that bring bursts of wetness – like the one on October 25 – can form within La Niña, and another may appear around November 8, said Natalia Gattinoni, a government agricultural meteorologist.

It’s these pockets of precipitation that can at least help farmers get off on the right foot. “Making a false start in these La Niña conditions is asking for big economic trouble,” the Rosario Board of Trade said in a Thursday report.

The problem with waiting for rain is that soybeans yield less when they’re planted later. Argentine farmers need a strong soy season to rescue the crop investment cycle next year. Reumann is already paying penalties on wheat contracts he won’t be able to fulfill.

Argentina’s solvency as a nation is also at stake since the Central Bank can’t do without crop dollars.

“The small wheat crop and later corn crop leaves a long summer ahead until soy is harvested,” said Mateo Reschini, a research analyst at Inviu. “And if soy plants don’t get rain, it could be a disaster. We may face a scenario where the foreign exchange balance doesn’t add up.”

“I’ve never seen it this bad,” said farmer Striglio. “I pray for rain.”

by Jonathan Gilbert, Bloomberg

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