Brazil, Argentina and Paraguay, the three largest agricultural producers in South America, are currently experiencing prolonged droughts and low water levels in major rivers. This seriously affects the harvest and the river transport of important summer crops,

Brazil, Argentina and Paraguay, the three largest agricultural producers in South America, are currently experiencing prolonged droughts and low water levels in major rivers. This severely affects harvests as well as river transport of important summer crops, of which corn and soybeans are the main victims. 

While the situation is likely to improve, food harvests in 2021 and 2022 could lead to losses that will affect the economies of three countries, though experts say the potential size remains difficult to predict.

For Soybeans, South America's star food, forecasts for the likely damage caused by severe weather vary from country to country. The most conservative forecast comes from the U.S. Department of Agriculture, which expects a shortage of 9.5 million tons, while other agencies predict even greater losses, such as the Brazilian Agricultural and Rural Agency, which estimates that production in the three countries will be reduced by 20 million tons.

According to a report by Agribusiness consultant Marianela de Emilio, in the case of corn, Argentina and Brazil are struggling to even meet the expected yields a few weeks ago. "The weather continues to make South America's production forecasts tightrope, planting area adjustments and potential yield declines," she explains. According to Brazilian agency AgRural, soybeans in Brazil, Argentina and Paraguay will lose several tons in 2021-2.

Weather forecasts until at least the end of March or the beginning of April are not very encouraging for the region as a whole, as the La Niña climate model continues to affect south American weather and cause droughts in all three countries.

"These patterns will continue as long as the La Niña phenomenon is active, and the forecast in the short term is not optimistic because we are still affected by the circulation pattern that suppresses rainfall in the Paraná Basin," said Cindy Fernández of Argentina. National Weather Service (SMN). 

Brazil is the world's leading producer and exporter of soybeans and the third largest producer of corn in the world. Both food crops have been affected this season due to a lack of rainfall in the southern states of the country, with harvests set to fall short of expectations a month ago.

The prediction already shows the missing content. Brazil's state-owned National Supply Company (Conab), which oversees agricultural planning, lowered its crude grain production estimates made last December due to the drought. For soybeans, production fell from 142.8 million tonnes to 140.5 million tonnes, while for maize, authorities expect production to be 112.9 million tonnes instead of 117.2 million tonnes. 

In Argentina, the lack of rainfall in the central and eastern regions of the crop cycle forced an estimated 8 million tonnes reduction in maize production, from 56 million tonnes to 48 million tonnes, and soybean production by 45 million tonnes to 40 million tonnes. In the first weeks of January, a heat wave hit the country's most fertile region. 

Meanwhile, Paraguayan Agriculture Minister Moisés Bertoni said the situation was not getting better. "We did well until the last weeks of November, but December was very dry and January was very hot, which had an impact on Paraguay's main export crop, soybeans," he said. 

Paraguay transports part of its grain production by barge to the agricultural export port of Rosario in Argentina, where the low water level of the river has become a problem for the state. "The barges are not fully loaded, which means that the cost of exports has doubled," Agriculture Minister Bertoni said.

Argentina's agro-industrial sector also suffered millions of dollars due to the low water level of the Paraná River. According to the Rosario Stock Exchange, in 2021 alone, ships were unable to fill up their cargo due to drought-related production issues, resulting in a loss of about $620 million.

The current drought has had and will have a serious economic impact. According to a report by the Rosario Stock Exchange, the impact on the Argentine economy will be at least $4.8 billion, equivalent to 1% of the country's GDP.

"Even if prices recover, the loss of net income in the production sector has reached $2.93 billion, which will lead to lower freight rates, lower financial and intermediation services, and less consumption," the exchange's report explains.

But the weather doesn't affect everyone the same. The stock exchange argues that the drought has particularly affected small and medium-sized producers, many of whom are sharecroppers who no longer own their own fields. On leased land, the results of current agricultural activities are already negative.

"At current costs, producers who continue to engage in these activities are likely to reproduce more soybeans and return to monoculture," BCR warned.

Carlos Achetoni, president of the Argentine Agricultural Confederation, which represents small and medium-sized producers across the country, said many were already in debt. "The poor harvest puts many people in bankruptcy, which could force more producers to pull out of production without help from the state," he said.

According to Bertoni, in Paraguay, agriculture directly accounts for 25% of GDP, which rises to 50% if you take into account the activities it generates indirectly through services such as transport or agricultural machinery. "The effects of the paraguayan drought are brutal, and if we talk about soybeans, which account for 40 percent of our total exports, it's even worse," he explains.

According to Brazil's National Confederation of Industry (CNI), drought and the resulting energy crisis caused about $1.464 billion in damage last year alone.