The Argentinian and Brazilian soybean crush volumes look set to rise in 2022 despite several domestic challenges, according to analysts.
While the Argentinian soybean crush in marketing year 2021-22 (October-September) is forecast at 42 million mt, up 4.6% on the year, Brazil is expected at 47.7 million mt, up 2% year on year, the US Department of Agriculture said in its latest World Agricultural Supply and Demand Estimates Dec. 9.
However, the crushers in these two major South American economies are facing distinct local issues, such as unfavorable government policies, taxation, macro-economic challenges, and weather, which are limiting their capacity utilization.
Argentinian woes to persist
In the last few years, the crushing sector in Argentina – world’s largest exporter of soybean meal and oil — has been grappling with under-utilization of capacity, inflation-led operating costs and high export tariffs.
Many agricultural analysts believe these issues to prevail in 2022 as well.
Argentina continues to struggle with prolonged recession and a very fragile dual currency system, which have significant implications on cash-strapped country’s soybean crushing sector.
Argentina currently levies a 33% export tax on soybeans, 31% each on soybean meal and soybean oil, compared with 12% each on corn and wheat.
High rate of taxes on the crushing sector weighs on the margins of local crushers, who also must deal with irregular supplies of raw soybeans and high logistical costs every year due to drought-led shallowing of the Parana River.
Parana is the lifeline of Argentinian commodities transport infrastructure and accounts for over 80% of the export volumes each year. But the river generally suffers a drastic drop in water levels due to prolonged mid-year drought, which severely cripples the transportation system.
In 2021, the logistical costs for Argentine exporters and traders increased by 300% year on year due to historically low water levels of the Parana river, according to the Rosario Grain Exchange, or BCR, which hampered the country’s grain supply and impeded the price competitiveness of its agricultural exports.
In the period between March and August 2021, BCR estimated a loss of $315 million in export revenue to the country’s agribusiness sector due to the parched Parana.
With yet another drought-inducing La Nina weather phenomena happening in 2021-22, there is a high possibility of another spell of river dryness in 2022, which is likely to pressure the operating costs and crush margins yet again in 2022.