Argentina's economic crisis and its impact on the global food crisis

Argentina has long tried to manage its crisis economy and currency by, among other things, limiting how large cash withdrawals can be made per week, as well as how much USD the population can buy at the official exchange rate. However, these measures has not led to increased confidence in the Argentine central bank and a strong Argentine peso (ARS), but to the existence of an official USDARS exchange rate and an unofficial, or Blue Dollar.

Today, the official USDARS rate is trading at around 130, for which you as an Argentine can buy a maximum of 200 USD for each month. Meanwhile, the USD is unofficially trading at more than double the rate, paying over 330 ARS per USD, and with the outlook for the Argentine economy looking reminiscent of the early 2000s, many are more than happy to pay more to get out with their ARS.

Now the Argentine farmers are protesting against the weak official exchange rate, because when they export soybeans they are paid by the Argentine government in the official exchange rate and thus lose 60 percent even before taxing the income. In protest, soybean farmers have now completely stopped exporting and are instead sitting on large stocks.

Export freezes are not a new phenomenon in Argentina, but occur periodically when farmers want to protect themselves against inflation. They use their produced raw material as a reserve for which they can sell at a higher price in the future. Now, however, the government is discussing two possible options to solve the temporary export freeze by either simply confiscating the farmers' stock and forcing exports, or by creating a third exchange rate that will lie between the official exchange rate and the Blue Dollar.

As the world's third largest producer of soybeans, an export stop will of course have an impact on the global supply of food. Along with Russia's invasion of Ukraine continuing to shake the world and both energy and food access, the export freeze is particularly worrying.

Soybean prices have been volatile so far this year, but are now trading near the levels we saw at the start of the year. Since the bottom at the covid-19 crash in March 2020, however, the price has first risen above 100 percent before falling back recently and is now trading around 70 percent higher than at the start of the pandemic.

Despite historically high prices, however, there is still upside in the long term. The price of ammonia, a common fertilizer, has risen in price from $215 per ton in September 2020 to over $1,200 in March 2022.

With Russia as the largest producer of fertilizers of which there is now a global shortage of. This will may be seen in raw material stocks in the coming months, therefore there is little room for a long-term drop in food prices. Now, the EU Commission has also proposed a temporary suspension on the tariffs that are currently in place for two key ingredients needed to manufacture fertilizers in an attempt to control prices.

So far, the farmers' export strike has had little or no effect on the soybean price, which is trading significantly lower than a month ago, but the price drop is rather technical and due to the entire commodity sector falling rather than fundamental negative signals behind it.