The One Thing Holding Argentina Together Seems To Be Falling Apart

Argentina is in trouble. The IMF is deciding whether or not to punish the country for allegedly manipulating inflation statistics, and hedge fund managers in New York City are suing the country for over a $1 billion in unpaid sovereign debt.

The latter issue has gotten so bad that President Cristina Fernandez de Kirchner has leased a jet to go on a world tour because her regime fears that the state jet could be impounded by angry creditors.

They did, after all, manage to impound an Argentine naval vessel last year.

So in all this chaos, how does the country roll along? Argentina's former Central Bank Chief, Martin Redrado explained it quite simply to the FT last November:

“There’s a very simple answer,” says Martín Redrado, a former central bank chief. “It depends on the [soya] crop. Given that international prices are strong and will continue to be . . . you can muddle along. But with low growth and high inflation.”

Now it looks that Argentina could lose even that. Weather conditions are working against the country's cash crop. This summer it took a big hit due to a lack of rain, this fall it suffered from too much. This intense rain (and in some cases flooding) has lead to delays in planting.

Here's what Morgan Stanley had to say about it:

The highest Oct-Nov rainfall totals in over 30 years across Argentina’s corn and soybean regions have led to widespread flooding, preventing farmers from planting their crops in a timely fashion. The Buenos Aires Grain Exchange reports that by the first week of Dec (comparable to early June in the US), only... 54% of the nation’s soy crop was planted, down from...65%... last year. Even today, farmers are scrambling to plant the last... 4% of the soybean crop — the equivalent of planting in mid-July in the US.

Adding insult to injury, January weather across much of western Argentina — which accounts for roughly 33% of the country’s corn and soybean production — has turned drier than normal, with soil moisture levels in the region now below 20% of capacity and little rain in the forecast through the next week... Our local contacts have also expressed concern that the wet start to the season discouraged adequate root depth, leaving crops more vulnerable than usual to dry weather today.

Morgan Stanley says that the soy crop could still be saved. Soy beans are planted later in the season, so if this dry weather ends the tide could turn. If it doesn't though, things will take a dramatic turn for the worse, hitting the soy crop at just the wrong time.