By: Todd Davis and Tyler Mark
The day started with an early trip to the Liniers Cattle market located just outside the Capital Federal limits but still part of the greater city of Buenos Aires. About 20% of Argentina’s cattle are sold through this market in an auction style similar to the Chicago stockyards of 40 years ago. One unique feature of this stockyards is that all animals sold through the market are terminal animals or no breeding stock is sold through this market. Many slaughter facilities are located near the market for the next step in the beef supply chain.
Liniers is the primary point of price discovery in the cattle market with the auction price serving as a reference price throughout the country. US commodities use the futures market for price discovery with basis serving to adjust the local price.
The class toured the Government House (aka the Casa Rosada) to see the executive branch of government. Argentina’s constitution is based on the US constitution in form, but not necessarily in spirit. Argentina has had several administrations that had strong executive powers that implemented farm policy without congress providing a check and balance. Hence the conflict between government and farmers over policies to promote cheap food which result in commodity price distortions and unprofitable production. This also creates a very unstable agricultural sector that requires long term investments and stable policies. Farmers and agribusiness hope that the new president, Macri, will be more market friendly which will result in more investment in agriculture and farmers making decisions based on economics instead of responding to political forces.
The final stop was with the Ministry of Agriculture, similar to the USDA. Some American farmers view the USDA reports as being wrong and intentionally trying to distort production in a way that lowers commodity prices. The rest of the world envies the transparent and consistent methodology used in USDA’s surveys of production, consumption, and potential supply and demand balances. The private sector in Argentina tends to fill the information void by doing specialized estimations and surveys that lack the statistical validity of USDA reports. The point of this visit is that unbiased information improves the function and transactions within the supply chains. As USDA responds to budget cuts and reducing the frequency of some surveys, will the US farmers and agribusiness step in to fill the void in providing market information?