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INTELLIGENCE KILLS UNCERTAINTY
If Kant’s prediction were true, there would be more and more intelligent people. Because uncertainty seems to be the name of the game these days, in business and in national and international politics. Let’s consider our country. In two years, we went from a closed economy, with high inflation and fiscal deficits as a tool, to one of openness, falling prices, and a surplus. This occurred despite a 50% to 100% increase in costs measured in dollars. Meanwhile, someone outside the system (Milei) won two consecutive elections, maintaining his rhetoric and style, and remaining completely aligned with the United States, which provided financial support when the economic model seemed to be faltering. The classic Argentine question is whether this system will last or if there will be a complete reversal in 2027. Our country’s history offers ample reasons for doubt.
“An individual’s intelligence is measured by the amount of uncertainty he or she is able to tolerate.” – Immanuel Kant (Prussian philosopher)
Adding to the uncertainty, our president’s main ally is Donald Trump, who is busy disrupting several issues, including Venezuela, the Russia-Ukraine mediation, promises to bring order to Gaza, threats to invade Iran, and the purchase of Greenland. And all of this within two years. How each of these conflicts plays out will have economic consequences (oil and food prices, interest rates) that will create new winners and losers. And the cycle will begin again.
Uncertainty is inherent in business and the development of nations. The ability to adapt to change, and even anticipate it, creates opportunities. Threats abound, of course, but the response to them is what makes the outcome unpredictable. In economics, it’s said that potential profitability is directly related to the risks taken. Without risk, there is no return. Taking risks isn’t reckless; it’s about weighing the consequences. And, for some, it’s about following instinct and taking a leap of faith. Great advances were often driven by people who weren’t aware that “it couldn’t be done.” And they prepared, trained, and did it anyway. Intelligence overcomes uncertainty, at least sometimes.
THE MACRO IN THE MICRO
Following the government’s favorable election results, the landscape shifted. The perception, both politically and in the market, is that the course set by Milei is set to deepen. This course could be summarized as more freedom, fewer restrictions overall, accelerating openness to the world, removing remaining capital controls, and, where possible, lowering taxes. Of course, all of this is tinged with pragmatism and a management of timing that is not without contradictions in economic policy. The change in the dollar exchange rate band regime and the reserve accumulation strategy are a good example. Flexibility, without rigid dogmas, seems to be the way forward. The current exchange rate appears more competitive, although inflation above 2% per month continues to erode profitability in many companies. The “silent” increase in costs expressed in dollars is here to stay and is forcing a change in priorities regarding liquidity management. Interest rates on loans have decreased, but they remain comfortably above 40% annually in pesos and 8% annually in dollars. The drop in country risk to 550 points allows for cautious optimism that, in a few months, there will be a more limited cost of money that will allow for rebuilding cash reserves and planning the necessary investments.
This is the backdrop against which businesses operate. And, depending on the business model, the strategy adapts accordingly. Those based on livestock farming are currently the best positioned. Agricultural businesses are dependent on the weather, but are enjoying better-than-expected prices and stable input/output ratios. Dairy companies face a challenging outlook. But all are assuming that cash flow dictates decisions and that the pursuit of competitive advantages (scale, talent, decision-making agility, management capacity, alliances) will be crucial for the future. There will no longer be loans that quickly become worthless, nor cheap moratoriums, nor cost subsidies. But there may be reductions or cuts in national taxes (several have already occurred), stable rules of the game, more predictable costs, appropriate labor reform, and few trade barriers. It is within this context that businesses will have to operate. A mixed bag. The actions and decisions of those who lead and manage real companies will make all the difference in the results achieved.
MERCOSUR – EUROPEAN UNION AGREEMENT
This agreement, which has been discussed for years, is now ready for signature. Generally speaking, we agree that it is positive, promoting the trend toward greater openness to the world for our country and the region. And with a partner that is the world’s third-largest economy. This type of agreement has concrete economic aspects, reflected in the establishment of preferential tariffs for trade. But it can also come with non-tariff barriers that either reduce or enhance competitiveness. Much remains to be discussed and negotiated. And with some European countries, whose producers are showing strong resistance to this integration, governments will have to strike a balance to make it work. We’ve included an article from Infobae that summarizes the main aspects of this agreement.
WHAT COMPANIES ARE UP TO
In general, the beginning of the year is a time for reflection. It’s a time to look ahead, trying to identify known variables and construct scenarios based on unknown ones. It’s a time to consider actions to take and future decisions to make. We will attempt to do just that.
– The production year is shaping up (barring any negative surprises) to be one of good product volumes. We saw this with wheat and, in theory, we will see it with soybeans and corn.
– In terms of prices, logistical problems, international production prospects, and geopolitical conflicts may bring surprises in price volatility, taking them to lower values than the current ones.
– Although interest rates have fallen, they remain high. This will eventually lead to decisions about financing and will require careful management of temporary surpluses.
– The current boom in livestock farming is boosting sales.
– Stable inputs can generate exchange opportunities in the pre-campaign period, where convenient input/product relationships can be established.
– At some point, selling and investing the proceeds at an interest rate may be a better alternative than holding onto the grains.
– We have a non-election year, with a stable exchange rate and low inflation. In other words, no surprises are expected in this regard.
– It is thought that there may be a further reduction in withholdings with the tax and labor reform.
This context will force producers to make different decisions permanently in areas where they may not feel as “comfortable,” such as sales decisions, price hedging, and the financial management of surpluses and shortages to determine the company’s profitability. This is happening in a year where productivity doesn’t seem to be the central, widespread problem. Furthermore, decisions will have to be made for the upcoming season (investments, expansion, maintaining the status quo, downsizing), whose 2027 harvest will fall in an election year.
Companies are currently in what we call a “pick and shovel” phase. This means a year of intense work making decisions to optimize profitability.
AGRICULTURAL BUSINESS
Being a market analyst has undoubtedly become an unhealthy job, as the decisions and comments of the US President, Mr. Trump, permanently change the moods and prospects of the markets.
Let’s get down to brass tacks. The latest USDA report increased its expected production and surplus forecasts for various grains, taking into account the positive outlook for the South American coarse grain harvest, which appears to be a record. It also predicts increased wheat production in the Northern Hemisphere for the upcoming season. These are bearish figures, which came as a bit of a surprise to the market. Furthermore, China is very slowly fulfilling its promise to purchase US soybeans, and if this doesn’t happen, it will send another blow down prices. Amidst all this, the US is intervening in Venezuela and making all sorts of comments about the future of oil exploitation and production in that country. We all know there’s a relationship between the price of oil and the price of grains. How this measure might affect the markets, and when, remains to be seen.
But as if that weren’t enough, the talk of possible intervention in Iran adds another layer to the whole problem. China, Iran, and Brazil, among others, are members of the BRICS countries. China could, if it deemed necessary, take trade retaliation against the US by reducing or delaying its soybean purchases, knowing that within the group it has a partner like Brazil that can replace the US as a supplier of the bean. This already happened to some extent last year when, in the midst of the “trade war,” China imported the soybeans it needed from Brazil and Argentina, with the consequent impact on international prices for the oilseed. Therefore, Trump’s actions and statements could have a concrete impact on grain markets and generate a reconfiguration of the various buying and selling relationships between countries. It is impossible to imagine how these possible actions (for better or for worse) would affect Argentina.
Meanwhile, at the local level there are two situations to consider:
– Logistics in the soybean and corn harvest appear to be a recurring problem, just as happened with wheat, and with an approximate cost of between US$15 and US$20/ton.
– Several grain prices are currently above the parity price (the theoretical price at which buyers can pay). This could be due to a specific demand for the commodity, or because there is an expectation of lower export taxes.
The aforementioned situation necessitates a review of sales projection policies. It appears that the “classic” producer approach of selling only what is needed and then waiting could carry the risk of significant price drops. The recommendation would be to minimize sales needs during harvest time and implement flexible price hedging (without committing physical stock) for a high percentage of the estimated production.
The Rosario Board of Trade reported that the A3 market (Matba-Rofex) reached a record 90 million metric tons (MT) in December. Soybeans accounted for the largest share of trading, at 57%. This is positive news because increased trading volume means the market offers more hedging options and greater liquidity.
LIVESTOCK BUSINESS
Livestock farming has a present, not just a future. Many indicators suggest a landscape of opportunities for this business, something that hasn’t been seen for some time. However, there’s still a way to go before these opportunities can be sustained. Let’s look at the main variables.
Domestically, the supply of cattle going to slaughter has been steadily declining in recent months, with an approximate drop of 7%. And during 2025, it was nearly 3% lower than in 2024. This decrease is being tentatively offset by a slight increase in animal weight (around 3 kilos on average), but this will be a slow process. The recovery of breeding stock (both in number and reproductive efficiency) that can supply more calves to the market will also be slow. Meanwhile, domestic consumption is holding steady and even improving, currently standing at around 48 kilos per capita per year. Argentinians like their beef, even when prices rise at the butcher shop.
And if it’s not beef, it will be chicken or pork. Between the three, they account for an average consumption of over 110 kilos per capita per year, making them one of the countries that can boast this level of animal protein consumption. Internationally, demand is also strong, with recovered prices. Quotas (Hilton and 481) are fetching good prices. Business with Israel and Europe is solid. And China, which buys 70% of Argentine beef exports, is seeing rising prices. Regarding China, it’s worth noting that, in defense of its domestic production, it has established maximum annual quotas for various countries. In Argentina’s case, this measure has a neutral impact in the medium term (the quota is similar to current exports), but it has hit Brazil hard, as the quota represents between 20% and 30% less volume than what has been shipped to that country. This movement will reshape the business model in 2026. As you can see, there’s a lot of activity and a lot of changes.
The question is whether Argentina can take greater advantage of the situation. And to do so, it needs to produce more beef. Currently, the cattle stock isn’t growing; it seems to be in equilibrium, and we aren’t experiencing a marked process of liquidation or retention. The prices producers receive are comparable to the peak prices paid in 2009 and 2022. This could act as an incentive to increase production and retain stocks, which would exacerbate the short-term supply shortage, leading to further price increases. In other political climates, this would have raised concerns about potential government intervention “to protect Argentinians’ food supply.” That scenario now seems highly unlikely. In this environment, steers are currently worth between $4,300 and $4,400/kilo, young steers above $4,600/kilo, fat cows around $3,400/kilo, and feeder calves approaching $6,000/kilo.
And pregnant cows are flirting with the equivalent of $1,000. Good prices and no expectation of significant drops, beyond the fluctuations that the market always shows. And with good input/output ratios regarding the costs of supplementation or forage production. Land lease values, measured in kilos/ha, are going to try to increase by landowners. We believe there is no economic margin for that to happen, especially in the case of breeding farms, an activity that is only now showing signs of some recovery. In this promising scenario, meatpacking plants are trying to maintain their competitiveness and their market share, but with difficulties. With a “high” steer price relative to the international market and with a potential drop in slaughtering that doesn’t dilute their fixed costs, it wouldn’t be surprising if the process of industry concentration in fewer hands continued.
Livestock farming, by definition, involves slow and silent processes. This sometimes masks the depth of the changes occurring at the producer, industry, and trade levels. And it necessitates a review of the strategy at each link in the chain.
DAIRY BUSINESS
In December, the price of Siglea milk was $476.60/liter ($6759/kilo of solids). The price per liter increased by 7.3% year-on-year and by 1.2% compared to the previous month. The decline continues, reflected in a worsening input/output ratio, where today it is not enough to buy 2 kilos of corn per liter of milk, an essential reference point. With inflation projected to be around 31% annually in 2025 and a stagnant milk price, this is understandable. In dollar terms, it is already at around US$0.30/liter, 20% less than approximately a year ago. The year 2025 closed with a production increase of around 10% annually, driven mainly by improved conditions in the first half of the year and by weather that favored forage production. But that picture isn’t there today, so by 2026 a slight increase in production and a smaller number of dairy farms are projected. The pressing need for greater scale, increased use of technology, and high efficiency in processes is pushing out those farms that don’t adapt. This has happened in almost every country.
Domestic consumption remains at 180 liters of milk equivalent per capita per year, but consumer prices have risen at half the rate of inflation to sustain that level of consumption. Exports, which account for 24% of milk exports, are also facing significantly lower prices. This is reflected in the price of whole milk powder, which currently stands at around US$3,200 per ton on the international market, compared to well over US$4,000 a year ago.
The industry is showing warning signs. Due to the need for liquidity, some products are being offered on the domestic market that barely cover costs. SMEs are facing a market that is only just beginning to recover, which has reduced their ability to pay. Many companies undergoing bankruptcy proceedings are experiencing a period of high uncertainty.
This snapshot of the business is taken within a context where dairy products remain in demand and valued for their nutritional contribution. It is reasonable to assume that once the balance between supply and demand is restored, profitability will return. In the meantime, each link in the chain is compelled to review its business strategy and assess its capacity to weather this unfavorable period.
Source: Zorraquín + Meneses and Associates
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