Two agricultural shipping routes this year linked with greater frequency the southern regions of South America with distant Northern Africa: Argentina with Algeria and Brazil with Morocco. Their cargo – wheat.
The reason for these unlikely pairings is no mystery. The war in Ukraine severely disrupted grain exports from that country’s breadbasket, which supplies about 10% of the world’s wheat supplies, as well as 16% of the world’s corn exports. Russia blocked the Black Sea. Insurance premiums on shipping skyrocketed, ratcheting up the prices of wheat, corn, and other agricultural commodities. Grains importers, especially poorer countries in Africa, faced critical shortages, exacerbated by their own poor harvests due to drought.
With these kinds of uncertainties and price fluctuations, it became feasible to transport grain more than 6,000 nautical miles from, say, San Lorenzo, Argentina to Algiers, Algeria or from Rio Grande, Brazil, to Safi, Morocco. That’s three times the distance from Odessa to each.
New Markets for South American Grain
“Suddenly wheat coming from South America became very competitive,” said Hugo Boudet, a data analyst with AgFlow, an agricultural data provider, which offers agricultural cargo tracking as well as a physical cash prices database (www.agflow.com). In addition, Boudet added, “Brazil exports of corn surged to the Middle East and North Africa, especially Egypt and Iran.”
And, Boudet continued, soybean exports from Argentina and Brazil to Northern Africa, have also increased because of heightened demand due to wartime disruptions.
“For these three agricultural commodities, Argentina and Brazil are really in demand on the market,” he said.
For example, in a blog post, AgFlow, quoting the Argentinian shipping agency NABSA SA, said that in the December to May first six month half of the 2021-2022 business cycle, “about 5.9 million tons [of Argentinian wheat] were shipped to African coasts, almost triple what was sent in the first half of the previous year.”
Port data and export-import figures provided by AgFlow showed an even more dramatic picture: A six-fold increase in wheat shipped from various ports in Argentina and Brazil to Algeria and Morocco during the period March 2022 to July 2022 compared with the same period in 2021.
Reuters quoted the Paranagua Port Authority, in Brazil’s Parana state, as saying that corn exports from the region increased almost threefold during the first half of this year, a jump attributed to the Ukraine war.
The war opened up Latin American agricultural exports in other ways as well. For example, Brazil depends on Russia for its fertilizer and was worried sanctions would limit supply. So, Brazil did a deal with Morocco to trade fertilizer in return for wheat at a favorable price.
Soon after Russia’s invasion of Ukraine in February, the European Union loosened regulations on imports of grains with traces of banned pesticides, ceding responsibility to individual member countries. Spain immediately responded by relaxing import standards of corn from Argentina and Brazil, as Spanish pork producers, fearing a feed shortage, aggressively lobbied their government for a reliable source. Their fear was heightened by France’s woeful corn harvest this year.
According to the US Department of Agriculture’s widely followed monthly global grain reports, Brazil's corn exports in August “were a record high of 7.6 million tons, reflecting the high level of production and strong global demand.”
Boudet hastened to add that, especially in terms of wheat, additional volumes are relatively small. Absolute numbers won’t make or break either country. “But in terms of what Brazil usually does and what Argentina usually does in those markets, these were actually impressive numbers,” he said.
La Niña Delays Rain and Hurts Grain Exports
For South American grain exporters, these new developments may be of relatively marginal impact to overall trade, but they represent bright spots in a decidedly mixed scene. Argentina, especially, has been beset by climate-related disruptions as well as by infrastructure shortcomings.
For an unprecedented third year in a row, La Niña conditions have blown through the Pacific and are likely to continue at least until the end of this year. In the southern part of South America, La Niña caused rains to be delayed and drought conditions to worsen.
Earlier this month, Argentina’s Rosario Board of Trade released devastating news. Because of inadequate rains, some 130,000 hectares, or 10% of the wheat acreage, can’t be harvested. Another 34% of the wheat crop is in “very poor condition that could follow the same fate,” the board said.
The board added that a staggering 91% of the current corn crop hasn’t been planted on schedule, with harvests next year already in jeopardy. “The lack of water is affecting even the establishments that have irrigation,” the board wrote. “The water is very low in the wells, and due to the scarce quantity, we have the problem of excess salts. Besides, as it is a complementary irrigation, it cannot compensate today for the enormous lack of water that we have.”
For Argentina, lack of adequate rainfall has meant more than just the prospect of poor crops. Much of its grain commerce depends on vessels traveling up and down the Paraná River. However, because of the drought, the river’s water level has dropped to its lowest level in more than 70 years. This limits the volume of grain that can be transported downriver. Add to that the relative shallowness of the Buenos Aires channel, which is only 9.7 meters, and an inefficient port system to begin with. All this creates a knock-on effect at the port terminals in Buenos Aires, as ocean-going vessels, regardless of cargo, must wait longer for berthing space and take extra time to load.
On top of all, this were devastating wildfires, which began to burn at the end of
last year, in the Northeast Argentinian province of Corrientes, bordering the Paraná. According to one estimate, 12% of all the province was burned, including prime agricultural land.
Brazil Looking at Record Harvest
Brazil, by contrast, could boast of a record grain harvest next year, bettering this year’s crop totals by 14%, according to the country’s food supply reporting agency, National Supply Company, or Conab.
Brazilian soybeans account for more than 50% of the world’s soybean trade, according to the USDA, and almost half of Brazil’s total grain production, according to University of Illinois economists writing in Farmdocdaily. That’s where overall gains are most likely to be seen. Part of this is boosted acreage, as farmers have converted some pastureland to soybean planting. Part is increased yields, a recovery from last year’s drought in some southern Brazil states, when some yields were cut in half.
China is the primary destination for Brazilian soybeans, accounting for some 70% of Brazilian soybean exports. According to the USDA, exports to China slowed during the first half of this year but are expected to accelerate as the Chinese rebuild their swine population, devastated in 2019 by African swine fever.
Brazilian corn is showing an even more dramatic rebound from drought that ravaged production in the 2020-2021 season. This past year, corn production rose by almost one-third and would have increased even more if La Niña-related drought had not lingered in certain areas, according to Farmdocdaily.
In another sign of grain export disruption caused by the war, China inked a long-term deal with Brazil in May to import corn, an obvious nod to diversifying its reliance on Ukraine for some 30% of imports. Reports indicate that Beijing and Saõ Paulo are negotiating to ease certain regulations governing pesticides to accelerate this trade, which could happen as early as late this year.
Desperation produced a number of surprises. Agricultural commodities analysts cited hastily arranged shipments of corn from the Brazilian port of Paranagua, south of Saō Paulo, to Northern Africa in April. According to Argus Media, upwards of 650,000 tons of corn were contracted to be shipped at a time of year when, historically, exports are close to zero.
To be sure, South American exporters can’t necessarily rely on accelerated trade flows that continue long-term. Since July, a UN and Turkey brokered agreement has allowed some shipments of Ukrainian grain safe passage through the Black Sea, although the accord is scheduled to end in November and there’s a huge backlog of grain waiting to be exported.
For South American exporters, gains are welcome, but they may well be temporary. “When you have this demand for product that was not very competitive before, it’s kind of like a gold mine,” said Boudet. “But if we come back to a normal situation in the Black Sea, they won’t be competitive anymore unless they really ramp up the production or really reduce the costs. That’s not really realistic right now.”