Evening Report | December 28, 2023
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Rains help Argentine crops as sector prepares to fight planned tax hike…Argentine farmers made good progress sowing corn and soybeans following recent rainfall, stated the Buenos Aires grains exchange earlier today, as industry groups prepare to fight government plans to hike export taxes on their produce.
The South American nation is one of the world’s top exports of corn, soybean oil and soymeal, but the country’s last harvest was ravaged by a historic drought. Faced with a severe economic crisis, Argentina’s new government is looking to the sector to boost its tax take.
Argentina’s CAA agro-industrial council said it would alert lawmakers about this “erroneous decision,” arguing the measure goes against the new right-wing government’s pledges to boost employment, production and exports.
Emerging economies pursue non-dollar commodity trade amid U.S. sanctions…Several major emerging economies are increasingly trading commodities without using the U.S. dollar, aiming to reduce their reliance on the American currency, the Wall Street Journal reports (link). Russia and Iran, facing U.S. sanctions and restrictions, have been selling oil in alternative currencies and finding buyers in countries like China and India. These nations are often willing to purchase these exports at lower prices. Additionally, countries like Brazil, the United Arab Emirates, and Saudi Arabia have taken steps to facilitate trade that bypasses the dollar.
Around 20% of the world's oil is now bought and sold in currencies other than the U.S. dollar, according to JPMorgan Chase. In 2023, there were 12 major commodities contracts settled in nondollar currencies, a significant increase from previous years.
The tight connection between the dollar and global oil markets has existed since a 1945 deal between President Franklin D. Roosevelt and King Abdulaziz Ibn Saud. This relationship has allowed the U.S. to exert influence in global trade and finance. Recent events, such as U.S. sanctions against Russia and the potential for future sanctions, have prompted countries like China to reduce their dependence on dollar payments, particularly in trade. Oil plays a central role in this shift, with Russia redirecting oil to Asian buyers and selling it in currencies like the Chinese yuan.
For energy importers, paying in domestic currencies instead of dollars lowers transaction costs, making Russian oil a more attractive option. India, for example, has become a major customer for Russian oil, paying in currencies like dirhams, yuan, and rupees.
Bottom line: The potential for significant change lies in whether Saudi Arabia, the world's leading crude exporter, begins selling substantial quantities of oil in currencies other than the dollar. While previous efforts to dislodge the dollar from the oil industry have had limited success, geopolitical and economic shifts are gradually reshaping the landscape. However, the dollar's central role remains deeply entrenched in global trade and finance.
Whatever happened to the Black Sea trade agreement?...Since Russia backed out of it and has expressed no interest in renewing the accord, it is pretty much a dead deal. Russia has continued to export record amounts of grain while Ukraine is finding alternative routes via rail and limited ocean shipping and using ports out of Romania, etc., as there is no real prospect of the deal being revived.
Asian refiners face diesel supply glut in 2024…Diesel supply in Asia is set to jump in 2024, fueled by new refineries in the Middle East and robust exports from China, and is likely to outpace the region’s world-leading demand growth, analysts and trade sources said.
As a result, diesel prices are expected to fall, meaning Asia’s refiners face a second consecutive year of sliding profit margins for the widely used fuel.
In 2022, average diesel profit margins soared to an all-time high of $45 a barrel, as supplies from top exporter Russia were disrupted and global inventories sank to a record low. Margins dropped nearly 50% in 2023 after Beijing allowed more fuel exports and refiners around the world ramped up output.
Supply in Asia, including the Middle East is expected to rise around 3.8% year-over-year in 2024, according to consultancy, Wood Mackenzie.
AI-based system predicts cow illnesses before symptoms, revolutionizes dairy farming…SmaXtec, an agricultural technology (agtech) company, has introduced an AI-based disease-detection system that can predict when cows will become sick, specifically detecting illnesses like mastitis, days before any clinical symptoms appear. Farmers have reacted with happy disbelief, amazed that technology can provide such early warnings. SmaXtec's system combines real-time monitoring of livestock health indicators with AI-powered data analysis to promote better dairy operations. Alisa Gusterer, a representative from the company, emphasizes that this technology aligns sustainability, animal welfare, and profitability, demonstrating that these factors can work together rather than being in conflict. Link for details.
