Argentina ranchers turn to China amid credit drought

Exports of beef from Argentina to the world’s second-largest economy have multiplied, as farmers tap Chinese demand for meat to help pay their bills as access to credit has dried up. (Reuters)
Updated 17 July 2019

Argentina ranchers turn to China amid credit drought

  • Exports of beef from Argentina to the world’s second-largest economy have multiplied, with shipments in the first five months of the year to Chinese ports representing 72 percent of Argentina’s total 180,000 tons of beef exports, according to CICCRA
  • Tight monetary policy and high interest rates squeeze farming sector

BUENOS AIRES: Argentina’s world-famous ranchers are culling their breeding cows at the highest rate in 30 years and tapping Chinese demand for meat to help pay their bills as access to credit has dried up for farmers in South American’s No. 2 economy.
The trend underscores how Argentina’s tight monetary policy and high interest rates hovering around 60 percent are squeezing the sector, which relies on up-front investment to maintain valuable cow herds and rearing calves over several years to maturity.
“The farmers, with no real source of financing, are now looking for liquidity through these cow sales,” said Carlos Achetoni, president of the industry association Argentine Agrarian Federation (FAA).
Argentina’s meat industry chamber CICCRA said in the first half of 2019 females represented 50.1 percent of slaughtered animals, the highest level in the past three decades and well above the maximum sustainable rate considered to be around 43 percent.
This trend could cut the herd by up to 400,000 head of cattle by 2020 from a total of around 53 million in March.
“It’s a survival decision,” said Miguel Schiaritti, president of CICCRA, who said ranchers were having to think short-term and get rid of their assets because they could not borrow at current rates.
“For ranchers the cow is the machine to produce calves. It’s as if someone who manufactures bolts sold the machine which makes the bolts to finance themselves and pay their expenses.”
Farmers said that Chinese demand was a silver lining, ensuring that these sales were at least proving lucrative.
Exports of beef from Argentina to the world’s second-largest economy have multiplied, with shipments in the first five months of the year to Chinese ports representing 72 percent of Argentina’s total 180,000 tons of beef exports, according to CICCRA.
China mainly demands cheaper cuts of beef from female cows — which better suit local cuisine more focused on shared dishes than prime cuts of steak — which has boosted the price of the category by 88 percent versus a year ago to an average of 43 pesos ($1.01) per live kilo in Argentina’s main livestock markets.
Farmers sell the cows to local slaughterhouses, which in turn ship the meat to global buyers including in China.
Carlos Iannizzotto, president of Argentina’s association of rural producers CONINAGRO, said unusual “sky-high” prices from China helped, though the core issue was still farmers’ finances.

FASTFACT

China acounted for 72 percent of Argentine beef exports in the first five months of the year.

“China exports mean at least producers don’t have to give the cows away, they can get a good price. That’s a blessing,” added Schiaritti.
Officials at industry bodies added a recent, landmark deal between the South American Mercosur trade bloc and the EU — that included a larger quota for meat exports — would do little for now to resolve the crisis facing Argentine ranchers.
The bloc made up of Argentina, Brazil, Uruguay and Paraguay, struck a free-trade agreement in June after two decades of talks, providing for the entry into the EU of an annual quota of 99,000 tons of beef at a 7.5 percent tariff.
“The agreement is just pain relief really,” said Schiaritti, whose CICCRA chamber has said that because of the limited volume — shared between the four countries — the export boost from the deal would not be that major.
FAA President Achetoni added that ito benefit from the deal, ranchers first needed authorities at home to solve the issue of access to credit, otherwise farmers would continue to be squeezed and the cattle herd would decline.
Argentina’s high benchmark interest rate, set by daily central bank auctions, has helped to bolster the local peso currency after it tumbled last year, but choked off access to credit, especially for small businesses and farmers.
“Before we can even really talk about getting into international markets, we need to resolve the issues of taxation and access to finance (at home),” Achetoni said.


Oil recoups losses as OPEC, US Fed see robust economy

Updated 14 November 2019

Oil recoups losses as OPEC, US Fed see robust economy

  • US-China trade deal will help remove ‘dark cloud’ over oil, says Barkindo

LONDON: Oil prices reversed early losses on Wednesday after the Organization of the Petroleum Exporting Countries (OPEC) said it saw no signs of global recession and rival US shale oil production could grow by much less than expected in 2020.

Also supporting prices were comments by US Federal Reserve Chair Jerome Powell, who said the US economy would see a “sustained expansion” with the full impact of recent interest rate cuts still to be felt.

Brent crude futures stood roughly flat at around $62 per barrel by 1450 GMT, having fallen by over 1 percent earlier in the day. US West Texas Intermediate crude was at $56 per barrel, up 20 cents or 0.4 percent.

“The baseline outlook remains favorable,” Powell said.

OPEC Secretary-General Mohammad Barkindo said global economic fundamentals remained strong and that he was still confident that the US and China would reach a trade deal.

“It will almost remove that dark cloud that had engulfed the global economy,” Barkindo said, adding it was too early to discuss the output policy of OPEC’s December meeting.

HIGHLIGHT

  • US oil production likely to grow by just 0.3-0.4 million barrels per day next year — or less than half of previous expectations.
  • The prospects for ‘US crude exports had turned bleak after shipping rates jumped last month.’

He also said some US companies were now saying US oil production would grow by just 0.3-0.4 million barrels per day next year — or less than half of previous expectations — reducing the risk of an oil glut next year.

US President Donald Trump said on Tuesday Washington and Beijing were close to finalizing a trade deal, but he fell short of providing a date or venue for the signing ceremony.

“The expectations of an inventory build in the US and uncertainty over the OPEC+ strategy on output cuts and US/China trade deal are weighing on oil prices,” said analysts at ING, including the head of commodity strategy Warren Patterson.

In the US, crude oil inventories were forecast to have risen for a third straight week last week, while refined products inventories likely declined, a preliminary Reuters poll showed on Tuesday.

ANZ analysts said the prospects for US crude exports had turned bleak after shipping rates jumped last month.