Economic crisis in Argentina and its consequences for agriculture

In view of the upcoming presidential elections and economic crisis, Argentina is in a rather difficult political and economic situation that may have an adverse impact on both domestic and export sales.

Problem review:

• Argentina is the top exporter of soybean oil and meal in the world, accounting for roughly half their global exports. The country is one of the world’s largest wheat, corn, barley and sorghum exporters. Argentina is also a major exporter of meat (mostly beef).
• In view of the present status of relations with the U.S., China is reducing purchases of American soybeans and therefore cannot rely solely on Brazil in meeting its needs for this commodity. In such a situation, Argentina may get a chance to boost supplies of soybeans and soybean products to the Chinese market.

Concerns are mounting now that incumbent president Mauricio Macri may lose the October elections to Alberto Fernández, who adheres to the principles of protectionist policy.

• If a protectionist government comes to power, its efforts would be aimed at protecting the domestic market. This may have an adverse impact on agricultural exports.
• The trade in credit default swaps indicates a 75 percent probability that Argentina will suspend debt repayments in the coming five years.

In the opinion of UkrAgroConsult, the following consequences for Argentina are possible:

In the economic domain:

• It is important to avoid the recurrence of developments seen in the past. Prior to Macri's presidency, the country had been blocked from financial markets for one and a half decades following the 2001 bond default worth some USD 95 Bl. During the presidency of Cristina Fernández de Kirchner (2007-2016), the Central Bank of Argentina sold US dollars at an understated price at her direction, thereby badly hurting the country's financial sector.
• The financial crisis raised the cost of hedging Argentina's sovereign debt to a long-term high in mid-August 2019.
• As anti-crisis financial and monetary measures were taken too late, the national currency fell by 30% to a record low of 59 peso per US dollar and the Merval stock index dropped considerably.
• Due to destabilization of stock markets, public dollar bonds have lost on average 25%, while the yield of short-term bonds has increased to 35%.

In the agricultural domain:

• If Alberto Fernández wins the elections, the agricultural sector may switch from the foreign market to the domestic one in order to better meet national demand.
• If the presidential elections turn Argentina's political course towards protectionism, the volume of soybean exports may be revised downwardly and the nation’s position in regional (including the Chinese one) and global markets may weaken.