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Grains: getting closer to opening markets

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Ever since 2006, markets for wheat and corn in Argentina fell under the control of the government just like many other areas where the administration sought to expand power and control. This time, it was Guillermo Moreno -the “Secretario de Comercio Interior”- who devised the strategy to restrict exports so as to keep a lid on domestic food prices. Intervention is always bad, but for Argentina it is even worse when it comes to agricultural commodities given the weight they carry in relation to GDP figures.

As such, Argentina has been missing the train of international skyrocketing prices that would have greatly benefitted the sector. More recently, however, there has been talk of a partial opening of exports via the establishment of quotas. In a maneuver that can be seen as Julián Domínguez – the Minister of agriculture- gaining more influence within the administration while Moreno loses ground, Domínguez announced the possible establishment of export quotas in the amount of  18,5 million tons for wheat and 5,5  million tons for corn.

The news though, wasn’t received warmly. Some insiders to the farm industry instead of acknowledging this as progress have expressed their distrust to government measures that might keep affecting prices paid negatively as quotas would not nurture the needed competition that free markets offer and farmers can take advantage of. Still, there is a sense that with Domínguez there could be more dialogue than there ever was with Moreno.

And that can only be a good thing!

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Bright future?

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Orlando Ferreres has written recently about the bright prospects for Argentina for the next decade, after a brief transition period in which some kind of readjustment must take place, namely during the second half of 2011 until the second half of 2012. Mr. Ferreres -a graduate from the Advanced Management Program at Harvard- is a renowned economist who can be considered -in a distant way- our local Robert Rubin. Having worked for more than 20 years in one of the biggest argentine multinationals “Grupo Bunge & Born” between the years 1966 and 1989 (BG stock symbol in NYSE) and after a stint at the government as Vice-Minister of Economy he has amassed  a formidable experience both in the public and the private sector which makes him a somewhat local Guru. Whenever he speaks, it is worth paying attention.

But with Argentina, it is also worth considering a possible “question mark” just as an insurance policy.

Mr. Ferreres analysis is pretty much based on the micro-macro conditions from which the country has been benefiting for the last 3 to 5 years. During this time, Brazil as well as other latin american economies have seen an enormous boom helped and sustained by a torrid bull market in commodities. Take the case of Chile and copper, or Brazil and iron ore, or Mexico and oil to name few. Granted, Mexico could be facing a “peak oil” problem down the road and other latin american economies could be suspect for many different reasons. But is undeniable that the growth of the mentioned economies has been real, strong and to this day sustainable.

Within this frame, Mr. Ferreres believes Argentina will chug along for the next 6 to 9 months with the soft commodities wind at its back. International prices for soybean, corn, wheat and even cotton have skyrocketed (again) and the country will be showing expanded GDP numbers and a strong fiscal surplus while growing at a rate of 7.5% annually. After this, he believes the accumulated structural problems in the economy will make themselves heard. Either by its own volition or by having no choice, the government will have to address the aspects of the economy that have been swept under the rug, such as subsidies in almost anything that affects the average Joe: natural gas, power, water, phone services, transportation, etc.

In his estimation, the period after the elections and for the span of 2 presidential terms should be of tremendous growth most likely spurt by the same conditions that have already benefitted the country in the last 5 years… but this time on steroids. Although there are certainly plenty of reasons to be optimistic -there is so much talk about super emerging countries building one new city per month and how India, China and to a smaller extent Brazil and Russia are going to take over the world- his analysis isn’t thoroughly comprehensive and definitely does not consider a black swan, something that by definition cannot be conceived anyway. But other darker alternatives can and must be taken into account as they can completely derail the path of growth of the emerging economies. And this darker scenario mostly resides in the Persian Gulf with a potential devastating war that can engage more than one superpower.

Finally, it is worth noting that he himself raises one alert: Argentina has already seen a few trains leave the station. And he would not be surprise to see argentines mess up this last call one more time.

For now, we would prefer to keep the “question mark” in place. In the title of this essay, that is.

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