The opportunities opened by the American trade war and China – 19/05/2019

The butterfly in China has become a hurricane in the world of soy, the main product of the Argentine economy. The Complex soybean shipments account for between 30% and 40% of exports in a country that lacks dollars. Three times more than the second on the podium, corn.

Only then did the automotive industry lead the podiums of exports of industrial products (MOI). But it's not just a quantitative question. It should be noted that in the case of agricultural products, the trade balance is totally surplus, whereas in the case of the MOI in general, the equilibrium is balanced or deficit.

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For every $ 10 exported by agriculture, it is necessary to: import only $ 2 in supplies and equipment. In the case of soy, which does not use nitrogen fertilizers, the ratio is one to ten. This highlights the competitive advantage of this product, created on the basis of knowledge applied to the natural resource pamphúmedo, where soybeans began to grow four decades ago.

The fact is, you're welcome soy was growing without haste and without pause. By the mid-1990s, it was already the leading agricultural product, with 15 million tonnes and an export value of $ 3 billion. But from there, following a new wave of technologies and investments in crushing plants, the expansion accelerated at breakneck speed. So, we reach 60 million tons of this campaign, now in full harvest.

A growth cycle

In this cycle, prices have oscillated between the 220 and the moments of 600 dollars a ton. That is, the expansion was relatively independent of prices. It has always managed to develop, in a kind of permanent flight, always generating new formulas to increase yields and reduce costs. A true technological epic, that of Clarín Rural we called "the second revolution of the pampas". The first was that of territorial conquest. This is the imprint of scientific and technological knowledge.

And just as at the end of the nineteenth century, Argentina had found a way to meet Britain's demand for high-value foods from the industrial revolution. the new tractor was the emerging demand for an impressive food transition on a global scale. The most populous societies on the planet have improved their incomes. And there is a very direct correlation between per capita income and consumption of animal protein.

Soy It is the main source of protein in the diet of all insects that wander and go to the spit.. Birds and pigs first. But also the meat and milk of cattle, as well as the different varieties of fish entering intensive production systems, before the growth of demand and the mbadive collapse of fishing grounds.

The farmers of the United States were the first to arrive. But Brazil, from the 70s, joined the new saga, with soy from the traditional agricultural states (Paraná, Rio Grande do Sul, São Paulo), to the west and northeast. Then Argentina and later (and to a lesser extent) Paraguay, Uruguay and Bolivia.

Thus, a nine-zone spatial arrangement has been generated: emerging countries, Middle East and Far East, on the demand side. And an offer focused on the American continent. That's how we came.

Alarming prices

Earlier this week and after a persistent erosion of prices that began almost a year ago,Quotes in Chicago broke through the floor of $ 300 a ton. All alarms sounded. The last time this happened was in 2008, when, having reached the historic ceiling of $ 610 per ton, it collapsed in a few weeks.

A harvest of 60 million tonnes, with a price of 350 as expected, would have represented an income of $ 21 billion. At $ 290, it would be less than $ 18,000. A significant difference of 3 billion.

Two problems explain the fall. The first is the trade war between Donald Trump's government and the People's Republic of China, the main claimant of soybeans. Last year, he had imported nearly 100 million tons, mostly from the United States. and Brazil. Argentina has not participated in the Chinese holiday because it wants to import unprocessed beans and not their derivatives (flour and oil). Here, a powerful crushing industry has been built, with capacity exceeding that of this year's record crop.

When Trump imposed import duties on Chinese products, especially steel and aluminum, XiJingpin's answer was to apply 25% duty on North American soybeans. The decision, at first, seemed neutral for other providers. In fact, the price difference between the increasingly expensive Brazilian and American soybeans has disappeared for a short time.

But the Chinese had already taken steps to reduce demand for soy, trying to replace it with other sources of vegetable protein, or by changing diets. When they were in that, there was an unexpected phenomenon: the emergence of African swine fever. It is a virus disease, deleterious for pigs. There are no reliable figures, but the prestigious Rabobank of the Netherlands, an institution in the agri-food and animal protein sector, says that the stock of pigs in China will decrease by 30%.

In the short term, this it hits the demand and soybean prices and Argentina suffers. Fortunately, the harvest is excellent, which will largely offset the decline in prices. This is PxQ: price per quantity.

Look to the front

But in a vision of long lighthouses, this "crisis" is also a huge opportunity.

China has remained a desperate situation as regards the supply of pork and, by communicating, with all kinds of meat. Pork is the main source of animal protein, with a consumption of 50 million tons per year, for which it sacrifices 700 million tons per year. That's half of the global demand for pork and 25 times that consumed by Argentine beef consumers. The United States produces 10 million tonnes and all the countries of the European Union are just over 22 million tonnes.

Three decades ago, China did not move the needle. He is now a key player in the animal protein market. In the last two years, suddenly became the main customer of Argentine beef. Also from Uruguay and Brazil. This week at SIAL Shanghai, Argentine businessmen have not hidden their euphoria for the improvement of beef prices, a consequence of the earlier trend, which is now added to the crisis of the pork supply.

The swine fever crisis and the trade war are generating an extraordinary opportunity for livestock breeding. This is how it is perceived in the sector, where the commitment to invest in genetics, pastures, food and health is strong. There is an interesting voracity for the new technologies of the breeding.

Argentina does not export pork yet, but expectations are huge in this sector. Just two weeks ago, the opening of China to this product was announced and an agreement was signed for the Argentine group Senasa to allow refrigerators to supply them. The pig is corn and soy on all fours. Argentina is also increasing its maize production, but it adds only 25% of the local value to the local value. And there are 50 million tonnes of soybean meal produced locally.

Five years ago, a Chinese company paid $ 5 billion to acquire North American Smithfield, the largest pork production company in the United States, which now fetches local hogs.

C & # 39; faster to grow with pigs than with beef. A belly, which is the turn of the vaccine industry, generates one calf per year. A well managed sow produces 25 fat capkins a year. This requires large-scale, highly technological and highly automated reproduction, with genetics, nutrition, process control, climate, water, effluents.

C & # 39; a hyper modern industry. The required investment is in the range of $ 5,000 per mother. An installation of 1,000 mothers requires no less than $ 5 million. Food accounts for more than 50% of the operating costs. In the world, no one has cheaper foods than Argentina.

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