The agricultural cycle begins in a few days in the Pampas region and is characterised by two opposing forces.
On one hand, international grain prices are reasonable but, on the other, the agricultural exchange rate is much lower that it was in the 1990s when the Argentinean Peso was pegged with the US dollar.
Production costs are higher than those of the previous year, remaining at a high level. The largest component in the cost structure is freight ($18.4-18.8/t) which is relatively high in dollar terms and has an important role in wheat and maize.
In the past four days in Argentina, the soya bean price rose by $30/t, thus helping in part to overcome the increased costs. But looking at the yearly average, the equation is getting worse.
The same situation occurs with fixed costs, which increase in dollars and weigh increasingly on the final outcome in the farms of Pampas.
Regarding the cost of rent, it is important to consider that 50-70% of agricultural production in Argentina relies on rented fields. In the past eight years there was a big increase in the leases, reflecting the attraction of land as an investment.
This creates a significant increase in business risk, because the level of capital investment and exposure to produce the same tonnage is increasingly high and the margin is shrinking.
Therefore renting farms, which has been the tactic of most producers in Argentina to grow their cropping area, is now a business that is hard, complicated, extremely volatile and risky.
Consequently, there is growing pressure for growers to seek alternatives for growth primarily in the purchase of undeveloped farms away from the traditional region of the Pampas.