MercoPress. South Atlantic News Agency

Brazil's growing concern with Argentine recession as exports and a trade surplus turn negative

According to Brazil's Foreign Trade Association, exports to Argentina have 29,9% in the first four months of the year

Brazil is deeply concerned with the declining trade export volumes to Argentina, which while last year expanded 8,9% in the first four months of 2024 have fallen 29,9%, and experts wonder if the Mercosur partner finally recovers from its current recession, will it continue on trusting a bilateral relation or appeal to China, US, or Europe.

José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB), gave the stark outlook on future trade relations between Brazil and Argentina. “If Argentina manages to overcome its severe economic crisis, there is no guarantee it will turn to Brazil. We much fear that despite being Argentina’s closest neighbor, Brazil may not receive the attention we think it deserves.”

De Castro’s assessment have been backed by recent trade figures, which paint a concerning picture, Brazilian exports to Argentina reached US$16.612 billion in 2023, while Argentine sales of US$ 11.998 billion in 2023, have recovered 2,9% in the first four month of the year, from US$ 3.908bn to US$ 3.948bn. This has meant that the trade balance surplus enjoyed by Brazil last year, US$ 4.715bn, has shifted dramatically and now represents US$ 40,3 million but for Argentina.

“Argentina is experiencing a challenging phase,” de Castro pointed out. He advised Brazilian businesses with operations in Argentina to hold out for at least six months, describing the current period as the country’s worst. “Argentina needs capital, but no one will invest knowing it faces numerous issues. The country has traditionally relied on bumper harvests of soybeans and corn. With such harvests, it might address its economic woes and attract productive capital to create jobs and new products. Right now, Argentina is in a state of complete austerity, cutting everything possible.”

De Castro compared Argentina’s situation to Brazil’s experience in 2000, when a surge in commodity prices and production generated a significant trade surplus, enabling Brazil to pay off its external debt. He believes Argentina will need similar luck with its agricultural output to stabilize its economy. “Argentina will need super harvests to pay its external debt and reduce its reliance on international financing. It’s a challenging scenario,” he concluded.

Meanwhile a major recent strike in Argentina, the world’s largest exporter of soy-meal and soy-oil, has shifted global demand to Brazil, the second-largest supplier of these products. Researchers from Brazil’s Center for Advanced Studies in Applied Economics (Cepea) report that this has intensified competition between domestic consumers and international importers, leading to increased export premiums and higher domestic prices.

According to Cepea, the heightened competition is significantly affecting soybean prices in Brazil. The interruption of Argentine exports has forced global importers to seek alternatives in the Brazilian market, exacerbating the situation.

Additionally, the National Supply Company (Conab) estimates a decline in Brazilian soybean production for the 2023/24 harvest, projecting a total of 147.68 million tons. Conab also cautions that the ongoing floods in Rio Grande do Sul could lead to further negative adjustments, potentially impacting both the supply and prices of the oil-seed.

This scenario places Brazil at a crossroads in the global soybean market, presenting both opportunities and challenges. While Brazil stands to gain from increased international demand, domestic consumers are facing higher prices due to competition for the oil-seed.