Fever in China, a cold for soy

"The butterfly effect" is the sustenance on which is based the so – called "theory of chaos" and which stems from a well – known Chinese proverb that reads as follows: "The slight flutter of the wings of". a butterfly is felt on the other side of the world ".

In the era of globalization, this theory has more and more sample buttons. An example comes precisely from a phenomenon that occurs in the country that provoked it: those who "beat" in China are pigs, due to the outbreak of a disease called African swine fever.

The rest of the world feels the effect "butterfly": this situation affects the price of soybeans, the country's main export product, and generates one in three dollars entering the country. But at the same time, it opens the possibility of increasing meat exports. In both cases, Córdoba, as a leader in national agricultural production, takes a close look at what is going on in the Asian giant.

In short, it is about the present and the immediate future of two key productions: soy and meat. And the questions are: What is Argentina's position on this scenario?

Negative horoscope

As a nod to fate, 2019 in the Chinese horoscope is the year of the "land pig". The appearance of this disease without healing is ominous and is deadly for these animals.

Why does this have an impact on soy? Because the Asian giant is the world's largest producer of pork, increasing imports of oilseeds in recent years have been aimed at grinding, turning them into flours and feeding them to pigs.

All this is happening in the context of the "trade war" between China and the United States, which has also reduced the international price of grain (see separately).

The size of the epidemic is unknown in real terms because Chinese statistics are not accessible. But it is estimated that it has between 500 and 700 million pigs, of which it could lose 30%.

According to a report by economists Agustín Tejeda and Nicolás Jorge of the Buenos Aires Grain Exchange, pork production in China exceeds 54 million tons. It represents nearly 90 times the Argentine production (620 000 tons in 2018), half the world, twice the European Union and four times more than the United States.

The researchers cite that the US Department of Agriculture (Usda) is planning a 10% production cut. On the more pessimistic side, Rabobank is planning a 30% bailout. Based on these calculations and adding an "intermediate" of 20%, they estimated the impact this could have on the price of soybeans.

In the case of the bean price, its value has already fallen by 12% or 40 dollars per ton since the end of last year. In the future, it could succumb between 3.8% and 10% in these scenarios.

The problem is compounded in the case of soy flour, a product of which Argentina is the world's largest exporter with 50% of the market. According to the estimates of the Buenos Aires Grain Exchange, its price could fall by 13%.

According to Emilce Terré, economist at the Rosario Stock Exchange, "with this combination of trade war and swine fever, soy is very cheap in the United States and stocks They are very high Many mills then process and export flour to the European Union, our main customer. It is external competition that is hurting us and is worrying for the health of the public accounts. "

The Buenos Aires Stock Exchange report shows how "swine fever" is hurting Argentine soybean exports. Assuming a reduction in pork production in China of between 10 and 30%, foreign trade in beans could fall between 1.4 and 3.5 million tonnes.

For Juan Manuel Garzón, a researcher at the Ieral of Mediterranean Foundation, specializing in agro-industrial issues, it should be remembered that China today absorbs 70 million tons, compared with 20 million 15 years ago. "It's the engine of global soy demand that accounts for 50% of the increase in global consumption – it's slowing down or, worse yet, is going as planned this year, it's about Bad news for global suppliers of vegetable protein, including Argentina, "he says.

From last November to last March, Chinese soybean imports fell by 26 percent, from 38 million to 28 million tonnes.

The "poroto" has the wind against

The spread of swine fever in China is a problem in itself, but it amplifies its impact thanks to the setting in which it unfolds: the struggle between two giants that shakes the foundations of geopolitics in the world.

A year ago, the United States and the Asian country began a trade war, the fragments of which had a considerable impact in Argentina. It was then that the administration headed by Xi Jinping responded to Donald Trump with 25% tariffs on US soy imports. It was the beginning of the collapse of the price of this grain, which was further strengthened by swine fever.

Since the beginning of 2019, the FOB (no retention) price of soybeans exported from Argentine ports has lost $ 40 per ton, according to economist Juan Manuel Garzón. "In April, the average was $ 320 a ton: we must go back to 2007 to find such low prices," he said.

His colleague from the Rosario Stock Exchange, Emilce Terré, believes that "the world panorama is not encouraging for Argentina" because "a trade war is not favorable to any country in the world." "China's growth will tend to decline and world trade will fall, for a country like ours, which depends heavily on its exports and China is one of its main buyers, is a bad context," he badysis.

An additional condition is that this occurs as part of the record crop accumulation globally; that is, the offer behaves in the opposite direction to that of Chinese demand.

As if that were not enough, the stormy front for soybean prices is complemented by the extraordinary rains in the United States that have delayed corn planting. Less land for cereals means more for soybeans and the possibility that next year's oilseed supply will be abundant again.

This context is not trivial for the Argentine economy. "With production of up to about 55 million tonnes of soybeans in this 2018/2019 cycle, every $ 10 oilseed loses on the international market, will resign by $ 550 million," Garzón summarizes quickly.

Terré estimates that despite a 40% increase in the volume of exports compared to the 2017/18 season (affected by a severe drought), the drop in export prices of soybeans and Derivatives (flour, biodiesel oil) mean that annual growth is only 18%.

Economically, they are 14 billion, or 1,400 million less than the foreign exchange earnings that had projected, thanks to exports of the soy complex, the Rosario stock exchange in early 2019.

For Agustín Tejeda and Nicolás Jorge, economists of the Buenos Aires Grain Exchange, "the new low price scenario has an impact on the contribution of the agro-industrial sector to the economy: the gross value of production of the six The main agricultural chains (soybean, corn, wheat, sunflower, sorghum and barley) would fall by more than $ 2,300 million and the value of exports would decrease by 1,344 million from the start of the season estimates. "

Other symptoms: commercial war

In addition to the epidemic outbreak in pork production in China (the world's largest producer), soy has another worrying front: the trade war between China and the United States. The lack of agreement between the two countries on tariffs also affects the oilseeds market.