Last week, the agriculture markets started off on shaky ground for a reason that you may not at first suspect: Argentina’s presidential election. It’s no secret that the happenings in South America impact our commodity prices, but at first thought, it’s usually something along the lines of weather or crop production in Argentina and Brazil.
The general election in Argentina was held on October 22, 2023 to elect the president, vice president, members of the National Congress, and governors of most provinces. No presidential candidate won a majority in the first round of voting, so a runoff election was held on November 19. During this, Javier Milei defeated Sergio Massa. Massa, Argentina’s Economy Minister, conceded the election that night before official results were announced.
Javier Milei’s victory has been received with a mix of both hostility and support around the globe. Milei is a far-right libertarian who led an anti-establishment campaign against one of the world’s highest inflation rates: 143 percent. He has some radical ideas and plans to make big changes in the country. Argentina is in a deep economic crisis with the triple-digit inflation rate as well as a lack of foreign currency reserves and capital controls that hurt trade. He has promised to close the central bank and dollarize Argentina – this is significant as no country that size has previously turned over their monetary policy to Washington D.C. Milei has also promised to cut government spending by closing Argentina’s ministries of culture, education, and diversity, as well as eliminating public subsidies.
Argentine farmers have been very supportive of Milei’s campaign. They believe that the government policies on agricultural products have been hurting grain and meat exports for many years. In order to try and control inflation, the Argentine government limits the export of agricultural products and strictly controls the exchange rate at which producers can sell their products abroad. Farmers in Argentina support the ideas of free exports, lower taxes, and less government control – and I can’t say that I blame them. This could be a good thing for Argentina’s agriculture sector. However, most analysts agree that Milei’s win will have a negative impact on the United States ag markets.
Argentina is already one of the world’s top soy, corn, wheat, and beef exporters. With his win comes the potential of ending Argentine agricultural export taxes. An export tax is a tax imposed on commodities leaving a customs area. Currently, Argentina’s export taxes for soybeans and other soy products (soybean meal, oil, etc) is 33 percent. Their export taxes for corn, wheat, and sorghum are 12 percent. Without those taxes, Argentina is further incentivized to export their products and could make them more competitive in the world market. Since they are our competition for exports, this could hurt United States export programs by making us less competitive in the world market.
Exports play a huge role in the commodity markets. They are a large chunk of the demand for our US products. The overall demand in the world won’t grow significantly at a very fast pace, so if Argentina is able to free up their exports, there is the possibility that it will take up some of the US market share, which would not be positive for our own export program or prices.