Boston, MA -- (ReleaseWire) -- 01/09/2014 -- With an election on the horizon and given continued problems with the economy, the Argentine grain sector will play centre stage over the medium term. With foreign reserves under pressure, grain exports (particularly soybean) will remain vital. Soybean will remain the pre-eminent crop in Argentina over the long term, and we expect the poultry production to show the most promise within the livestock complex. We have downgraded several forecasts, some due to changes in historical data and others due to reduced growth expectations. In particular, we are forecasting lower sugar production in 2013/14 due to poor weather in key growing regions, and see reduced growth in poultry consumption, as demand has risen significantly in recent years, and we believe per capita growth is slowing. We see potential for a mild rebound in beef production, as sector fundamentals remain challenging despite a significant decrease in grain prices.
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- Corn production growth to 2016/17: 8% to 27.9mn tonnes. Our revised growth projections stem from lower average corn prices in coming years along with more substitution to soybean plantings.
- Soybean production growth to 2016/17: 12% to 56.2mn tonnes. Growth will come from increasing export demand for soybeans along with more value-added products such as soybean oil. Soybean crops are also generally less capital-intensive than corn crops due to lower input costs.
- Poultry production growth to 2016/17: 17% to 2.3mn tonnes. Most production growth will come from improving trade demand, as we see comparatively subdued growth in the domestic market.
- 2014 real GDP growth: 2.9% year-on-year (y-o-y) (down from 3.2% in 2013; predicted to average 3.8% from 2013 until 2017).
- Consumer price index (end of period): 17% y-o-y in 2014 (down from 16% in 2012).
We have downgraded our short-term production growth forecasts for the Argentine beef sector, as high inflation and competition from other meats cuts into beef demand. Consequently, despite increasing feeder cattle prices and lower grain prices, sector margins will show only a slight improvement in 2014. Local observers suggest that the herd rebuilding seen in previous years is likely to stagnate unless feeder cattle prices continue to rise. Reduced export potential to key regions in Asia and North American Free Trade Agreement (NAFTA) stemming from a case of foot-and-mouth disease (FMD) will also hamper production incentives. Returns for farmers, despite improving, are being constrained by domestic inflation which has reached a total of almost 90% between 2010 and 2013. Given that roughly half of the total slaughter occurs at the farm level (the other half occurs in feedlots), the rebuilding of cattle herds over recent years is likely to slow beyond 2014 and may cease altogether if margins do not improve.
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