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Drought in Argentina and Uruguay, the most expensive weather disaster of 2018


After a severe lack of rainfall during the summer of 2017/18, parts of Argentina and Uruguay are now suffering their worst drought in decades and the most expensive weather-related disaster on the planet so far this year. This is also the most expensive disaster in the history of both Argentina and Uruguay.

The drought began in November 2017, causing huge agricultural losses and raising concerns among farmers, government officials and experts in the world’s third-largest exporter of soybean and corn.

"It’s dramatic," a farmer and agricultural engineer who provides advice to growers told the Associated Press. "Not only is there the physical loss of grain yield, but there’s also the loss of quality, which lowers the product’s final price."

That’s a blow to Argentina, where farming is the economy’s main engine, and high or low prices for soy and other commodities can either help sustain or bust government investment plans, AP said.

The drought was caused by a severe lack of rainfall over Southern America during the summer of 2017/18, leading to the worst drought in decades.

According to insurance broker Aon Benfield, total losses are near $3.9 billion, making the drought the most expensive weather-related disaster on the planet so far in 2018, and the most expensive disaster in the history of both Argentina and Uruguay.

Argentina's Buenos Aires Grain Exchange predicted that the drought would likely cause an economic loss of $3.4 billion. But the impact could be even more bruising if related industries are taken into account, it said.

The exchange added that Argentina’s famed meat and dairy industries, which depend on corn and soymeal for animal feed, are facing more than $600 million in losses. Soy makes up more than a third of all Argentine exports, and Argentina is the world’s top supplier of soy oil and meal, accounting for 48% of total global shipments of soybean meal in 2017. The country is also the world's No. 2 exporter of corn, behind the US, and the worlds third largest exporter of soybeans, behind the US and Brazil.

"You’ll have less beef and a problem with a rise in prices," Ezequiel de Freijo, chief economist at the Argentine Rural Society, said about the outlook for next year.

He said the consumption of Argentine diesel fuel will also be reduced by 2.5% in 2018. And about a million fewer trucks will be used to transport grain in 2018 compared to last year because of the drought. That translates into an estimated $1.1 billion in losses.

Argentina’s 2018 soybean harvest is expected to be near the record-low harvest of the drought year of 2009; both severe droughts occurred during weak La Niña events. According to EM-DAT, the international disaster database, the $3.4 billion cost of this year’s drought exceeds a $3 billion flood (2018 dollars) from October 1985 as Argentina’s most expensive disaster on record.

The lack of summer rainfall this year in Uruguay has led to the worst drought conditions in that nation since 2008/09. Local industry officials anticipated economic losses exceeding $500 million, which would rank as that nation’s most expensive disaster in history. The previous record was the $380 million cost of a drought in 1999.

Corn prices in the U.S. have risen 14% since December and soybean prices have risen 8% due to the Argentina drought, as global supplies have tightened and demand has risen, AccuWeather's Dr. Jeff Masters reported.

In addition, the global price of food as measured by the U.N.'s FAO Food Price Index increased by about 1% from February 2018 compared to January 2018, due the Argentina drought.

According to an article published by Reuters at the beginning of March 2018, the drought 'has not ended a scenario of global oversupply left by years of bumper harvests driven by good weather and genetically engineered crops.'

However, Reuters added that South Africa, another corn exporter has declared a national disaster over drought and that dryness is also threatening wheat-growing areas in the central part of the United States.

The damage leaves grain markets more susceptible to swings driven by weather threats during the US summer growing season. "A good part of the buffer the world had on beans has been lost," Cargill Inc told Reuters.

Global soybean ending inventories are still a record at 98 million metric tonnes, up 87% from 10 years ago, according to the U.S. Agriculture Department. The price rally could be short-lived and eventually worsen the supply glut as farmers are expected to plant more US acres with soybeans this spring, Reuters concluded.

Featured image credit: United Soybean Board


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