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ARGENTINA-PARAGUAY-URUGUAY – International crops market (August 2021).

The evolution of the sector is interesting to monitor for cattle producers like us as it foreshadows the price and volume of some consumables for livestock.

International 1-year wheat prices (USD/Bu):

Wheat: Prices have risen but have not yet reached the record levels of 2011 and 2012. Recent increase due to the drought effect in the USA.

International 1-year corn prices (USD/Bu):

Corn: +72% since June 2020. Improvements in growing conditions in Europe and the USA, and increased yields in Argentina and Brazil leading to a downward correction in prices.

International 1-year soybean prices (USD/Bu):

Soybean: +70% since June 2020. The new surge in prices is not like in 2012 solely linked to the boom of agro fuels.

What are the drivers?

A dynamic demand led by China: China imported a record 32 million tons of grain and 100 million tons of soybeans in 2020, and continues to import corn at an unprecedented rate. With the pandemic, importing countries have increased their strategic reserves to avoid supply disruptions.

Tensions linked to export restrictions: export taxes and quotas instituted by producing countries to contain domestic prices (Russia, Ukraine, Argentina) are also increasing the pressure on prices.

Concerns about the level of world stocks: -10% for corn and -22% for soybeans in forecasted for 2020/21.

The drought which has affected Europe, USA, Brazil and Argentina (La Niña).

Weakening emerging currencies against the US dollar has favoured exports.

…World meat prices are only starting to follow crops prices increase. This delay in revaluation is explained by the importance of food costs, which must necessarily be reflected in prices.

ARGENTINA-PARAGUAY-URUGUAY – Global crop supply fears send soybeans to highest in 6 years (November 2020).

Soybeans traded at the highest level in more than 6 years as increasing demand from top importer China and dry weather in the major producing areas of South America spur growing concerns over global supplies. Prices have climbed more than 40% since March after China started snapping up cargoes to feed a massive increase in hog numbers as the country recovers from African swine fever. Now the development of southern hemisphere crops in Brazil and Argentina has been threatened for weeks by lack of rain. Brazil is the biggest grower of soybeans and Argentina the top exporter of soybean oil.

International 6-year soy prices

Source: Bloomberg

Imports by China may reach 100 million tons next year and grow 3 to 4% annually over the next decade, according to the US Soybean Export Council. The US and Brazil have already sold a large part of their crops for shipment in coming months. Meanwhile, a stronger Chinese currency and a weaker dollar are only increasing the appeal of farm imports for the Asian country.

Corn has also been rallying on expectations for record Chinese imports and because of the dry weather in South America, but there are concerns over the impact of the latest US lockdowns on demand for corn ethanol.

ARGENTINA-PARAGUAY-URUGUAY – Covid-19 Pandemic (March 2020).

Over 10,000 cases of contamination have now been declared in Latam countries (Argentina has registered around 1,000 cases while Paraguay 100, but cases are significantly increasing day by day).

Like other countries in the world, the countries in which we operate, have temporally closed their borders in response to growing concerns over the spread of COVID-19. Borders have been closed to all non nationals or non-resident foreign nationals. Flights have been suspended, all inbound and outbound commercial as well as private flights. However, no restrictions have been applied to cargo service aircraft and aircraft that provide medical, emergency services, and foreign nationals who are repatriating. People entering from abroad will be subject to self-quarantine for 14 days. Authorities have also introduced general preventative isolation. During this time, people must remain in their place of residence, and may only leave for essential travel such as stocking up on food, medicines, and cleaning supplies.All those measures are in place and may be extended and reinforced as needed by local authorities.

For us, farming activities are not subject to restrictions for now and we continue to operate normally our cattle farms and forestry in Argentina as well as our rice production in Paraguay. We are part of the food chain. As for our central administration performed in Buenos Aires, we have closed our office on March 17 and all staff is now working from home. Daily tasks are performed normally.

Our priority is to provide secured work conditions to all our staff and to ensure business continuity as much as possible. The situation is involving daily, and we are trying to be pragmatic as much as possible

URUGUAY – Conservative Lacalle Pou wins Uruguay presidential election (November 28, 2019).

Center-right candidate Luis Lacalle Pou (a business-friendly conservative) won Uruguay’s presidential election after his rival conceded, bringing an end to 15 years of leftist rule in the country.

Mr Lacalle Pou, a 46-year-old lawyer and a former senator, defeated Daniel Martinez (former mayor of Montevideo) in the runoff election after a recount of votes. The gap between the two candidates who were in the run-up was only 3,090 votes.

He plans to put more police in the streets as public safety has been eroding, but also wants to tackle the country’s high taxes rate and cost of living through austerity measures to reactivate the economy. He will take power on March 1st at the head of a right-wing coalition of 5 parties.

Uruguay should remain a bastion of peace and stability in a turbulent region.

URUGUAY – Presidential election headed to November runoff (October 27, 2019).

Uruguay’s presidential election concluded Sunday night with none of the candidates earning the outright majority needed to win in the first round. Leading candidates Daniel Martínez of the Frente Amplio (leftist coalition that’s governed Uruguay for almost 15 years) and Partido Nacional’s Luis Lacalle Pou will face off in a November 24 run-off.

Mr Martinez (right side of the picture), ex-mayor of Montevideo and former minister, had around 38% with a third of votes counted, well short of the absolute majority needed to win outright. His rival, former senator Lacalle Pou (left) was running second with 30%.

Even if Mr Lacalle Pou has more conservative view, both candidates are focused to reboot the economy and the outlook of this election won’t change the stability of Uruguay’s democracy. Uruguay’s country risk will remain stable, and the country has not become riskier than last week for Investors.

The winner of the November 24 runoff will start his 5 year term on March 1, 2020.

Finally, Uruguayans also elected 99 deputies and 30 senators and voted on a series of referendums on tough on crime measures.

URUGUAY – Finnish forestry giant UPM go ahead with USD 3 billion pulp plant in Uruguay (July 2019).

On Tuesday 23/07/2019, UPM announced the decision to construct a 2,1 million tonne greenfield eucalyptus pulp mill near Paso de los Toros in central Uruguay. This investment of USD 2,7 billion will grow UPM’s current pulp capacity by more than 50%. The mill is scheduled to start up in the 2nd half of 2022.Today, the plantations that UPM owns and leases in Uruguay cover 382,000 hectares. UPM will invest USD 350 million in port operations in Montevideo and local facilities in Paso de los Toros. In addition to the mill and port investments, UPM will invest in a new residential area in Paso de los Toros and provide temporary housing for the project personnel.

This project will also enhance infrastructures of the country and has significant impact on the economy :

 1/ Efficient logistics chain is fundamental to the mill’s competitiveness and supply security in global markets. This will be secured by the agreed road improvements, extensive railway modernization and port terminal construction. UPM has decided the construction of a deep-sea pulp terminal in Montevideo port with an investment of approximately UISD 280 million. Direct rail access from the mill to a modern deep sea port terminal will grant an efficient supply chain to world markets.

2/ Based on independent socioeconomic impact studies, the mill is estimated to increase Uruguay’s gross national product by about 2% and the annual value of Uruguay’s exports by approximately 12% after completion.

In the most intensive construction phase, there will be more than 6,000 persons working on the site. When completed, approximately 10,000 permanent jobs are estimated to be created in the Uruguayan economy whereof 4,000 would be directly employed by UPM and its subcontractors. About 600 companies are estimated to be working in the value chain.

The mill will be located in one of Uruguay’s many free trade zones and pay a fixed annual tax of USD 7 million per annum. The mill’s value chain is expected to contribute USD 170 million in annual taxes and social security payments and contribute annually USD 200 million in wages and salaries.

The entire project would be the largest investment ever made in the country with USD 4 billion in total investment, or about 7 percentage points of GDP.

“Press Releases UPM dated 23/07/19”

ARGENTINA-PARAGUAY-URUGUAY – EU-Mercosur free trade deal (July 2019).

The European Union and the South American trade bloc Mercosur (Argentina, Brazil, Paraguay and Uruguay – Venezuela is a full member too but has been suspended since 2016) reached a free-trade agreement on 28 June 2019.

The deal impacts a combined population of more than 780 million people (world’s biggest free trade area), and would save more than USD 4.5 billion worth of duties per year, according to European Commission President Jean-Claude Juncker. Both sides currently trade over €88 billion in goods and €34 billion in services each year.

The agreement is broad, covering both tariff and regulatory issues, including services, government procurement, trade facilitation, technical barriers, sanitary and phytosanitary measures, and intellectual property.

The agreement also opens up the EU market to goods from Mercosur. Of the EU duties on imports from Mercosur, 92% will be eliminated over a transition period of up to 10 years. However, the EU will limit imports of sensitive agricultural products such as beef, ethanol, pork, honey, sugar, and poultry; and these products will have to comply with the EU’s standards.

Cattle outlook: A new 99,000 ton annual quota for beef exports to EU member countries will be assigned to Mercosur and large South American livestock farms will be competing with smaller local cattle producers.

Another example with rice: Argentinean and Uruguayan producers (mainly) could further weaken the European rice market. In fact, rice from Mercosur countries is round grain, the same kind that is produced in the Spanish Levant. This would likely put Spanish farmers at a disadvantage given that the Mercosur rice would likely come at lower prices. This might create new market opportunities for those countries other than Brazil.

The list goes on but the agreement still needs to be ratified by the national parliaments of all member countries of both blocs, as well as by the European Parliament and EU Council. It may take 2 to 3 years before being effective. However, if Mr Macri loses the October presidential election to the leftwing populist ticket of Mrs Kirchner and Mr Fernández, there is a risk Argentina may opt not to stay in.

Bottom line, this agreement will create new opportunities for Mercosur farmers and might force to evolve the current predominantly farming family model across the EU to more modern sustainable industrial agricultural units or groups.

ARGENTINA-PARAGUAY-URUGUAY – While China announces higher tariffs on US produce, South American nations can see opportunities (May 2019).

China has announced on 14/05/19 higher tariffs on a range of US goods including frozen vegetables and liquefied natural gas, a move that followed Washington’s decision last week to hike its own levies on $200 billion in Chinese imports. As an answer, the US are speaking on the possibility of raising duties of up to 25% on a further $300 billion worth of imports from China.

US farmers are among those most hurt by the trade war, with soybean sales to China plummeting and US soybean futures hitting their lowest level in a decade. Trump said on Monday that his administration was planning to provide about $15 billion to help farmers whose products might be targeted.

Farmers, who are a core political constituency for Mr. Trump’s Republicans heading into the 2020 presidential and congressional elections, are growing increasingly frustrated with the protracted trade talks and the failure to reach an agreement.

Meanwhile, this trade war is creating opportunities for Latam crops, especially for soybean and corn. To this aim, Argentina will exempt an import tax on goods that are used in the production of exports, such as soybeans (the world’s top soy-meal exporter).Those products will be exempted from an import tax that the government has raised a week ago to 2.5% in order to boost the tax revenue as the country deals with a severe economic crisis and annual inflation of 55%

In the trade war between the US and China, South American farmers may have a card to play.

URUGUAY – Update on La Esperanza farm activities (January 2019).

Situation/weather: The farm is currently in very good shape as you can see. We did not register the same wet month of December we faced at Santa Maria; rainfalls recorded were on average levels but winter rains were particularly dense during July and August where we registered in aggregate 529 mm of water versus 196 mm on a historical average basis. These rains have been beneficial for soils and pastures which could recover from the intense drought we faced during January through April 2018.

Crop activities: Around 690 ha have been planted with soybean (only one plot of 50 ha could not be sowed due to soil conditions) and the crop is developing just fine, even better than in Santa Maria farm. We hope that the situation will go on until blooming stage and harvest.

In addition, we have sowed 84 ha of sorghum and the crop is developing very well (4.5 t/ha yield are expected). This crop is going to be used to feed the animals to complement the dried fodder. Sorghum is a crop with many advantages: it’s a rustic crop, input-efficient and simple to cultivate.

Sorghum needs mostly nitrogen, but little phosphorus and sulphur. Regarding phytos use, only one or two applications of herbicides are needed. The crop does not require insecticide or fungicide.

Cattle operation (3,780 heads): The entire herd is in very good shape and has access to dense pasture as you can see. For this cycle, we are targeting to produce 576 tons of meat with an average herd of 3,900 heads.