Diesel oil consumption in Argentina during the current crop year (2016/17) could rise to 2,032 M liters, equaling to a total expenditure of 2,264 M USD. This would result in an 11% year-over-year increment in fuel oil consumption caused by larger soybean, corn and wheat crops.
According to our estimates, fuel oil consumption associated to grains production has increased 11% from last years’ total of 1,831 M liters. The reasons for this increment are related to:
a) Larger crop area, which rose 1 M hectares to a total 36 M hectares for the current crop year.
b) A 15.8 MT rise in grain production, which reached 125.5 MT for the current crop year. This includes a total 38 MT of corn (+7.9 MT), 16.6 MT of wheat (+ 6 MT) and 57.3 MT of soybeans (+2 MT). These values come from our own GEA-BCR estimates.
The larger 2016/17 crop represents more demand of fuel for both short and long distance grain freight. Agriculture represents an important driver for fuel demand in Argentina, not only due to the large volume of grains and by-products that must be transported, but also because of the use of more technologically advanced processes and machinery in the productive process, which increases dependence on liquid fuels.
Due to its relevance, the Rosario Board of Trade tries to estimate the total fuel oil consumption in the agricultural productive process (both derived from the use of machinery and internal transport); as well as in domestic grain freights from fields to port facilities and industrial plants both by train and truck. Given the complexity of the task, certain assumptions that might not completely coincide with reality had to be made. As such, the following values must be considered as an approximation.
Estimation of fuel oil consumption in the production of grains 2016/17 crop year
To arrive at the total use of liquid fuels in the productive process, meaning the demand derived from activities that take place within the boundaries of the fields used for the production of grains, we use the Ministry of Agroindustry’s (MINAGRI) estimates for total crop area as a starting point. We then try to approximate fuel oil use in different activities related to production (sowing, harvest, fieldwork, etc.). For wheat, soybeans and corn, we used crop area data from GEA-BCR.
Table 1 shows a summary of our estimates. The following assumptions were made:
Assumption 1: Sown area equals harvested area.
Assumption 2: Per-hectare fuel oil consumption is estimated for an average set of agricultural machinery.
Following our methodology, fuel oil demand in the grain production process for the 2016/17 crop year could rise up to 903 M liters.
Estimation of fuel oil consumption in grain freight 2016/17 crop year
Calculating fuel consumption for grain freight is a complex task given the large heterogeneity in transport modes as well as diverse routes that crops might follow to arrive to destination.
For our yearly estimations, we use a model that relates total grain production to a certain volume of expected fuel demand. Crop production data from both MINAGRI and GEA-BCR (for soybeans, wheat and corn) were used as input. Results are summarized in Table 2, which discriminates truck and train demand. The following assumptions were made:
a) Eight per cent (8%) of total grain production is preserved for self-use, and as such, it does not enter the commercial circuit.
b) Fifty per cent (50%) of total grain production passes through grain storage facilities before reaching final destination (port terminals or industrial plants).
c) Average distance between fields and grain storage facilities is 30 kilometers.
d) Average distance between fields and final destination is 350 kilometers.
e) Average distance between grain storage facilities and final destination is 350 kilometers.
f) A truck carrying grain consumes an average of 0.4 liters of fuel oil per kilometer.
g) Freight by train uses 75% less fuel per kilometer than trucks to transport a ton of grain.
h) Average distance traveled by train freights is 430 kilometers.
According to our model, we estimate that fuel oil demand for grain transport both by train and trucks could rise to 1,129 M liters in the 2016/17 crop year.
Total Fuel Oil consumption for 2016/17 crop year
Adding fuel oil demand from both sources, we arrive to total demand estimates. Table 3 shows a summary of our results both in terms of quantity and value:
a) Fuel oil consumption for production and transport of grains in the 2016/17 crop year is expected to rise to around 2,032 M liters.
b) If we value that volume at current prices for fuel oil in Santa Fe, total fuel oil expenditure should reach around ARS 38,200 M.
c) If we convert total expenditure to US dollars at the current exchange rate (around ARS 16.87 at the time this article was published), it would equal around 2,264 M USD.
We should take into account that our estimates differ significantly from those made by the Argentine Rural Association’s Institute for Economic Studies and International Negotiation (Instituto de Estudios Económicos y Negociaciones Internacionales de la Sociedad Rural Argentina), which calculates a total of 3,800 M liters of liquid oil consumption. This estimation calculates demand for all agricultural activities including cattle production and the “regional” economies, such as the production of fruits, cotton, rice, feeding grass, etc., while including expenditure in road improvement and electrical network extension. Our calculations refer only to the production and transport of: soybeans, corn, sun seed, sorghum, rice, peanuts, wheat, oats, rye, barley, birdseed, safflower, rapeseed and lineseed.
Changes in fuel oil demand from 2015/16 crop year
We have already shown that our estimates for fuel oil demand in grain production for the current 2016/17 crop year could rise to around 2,032 M liters. During the previous crop year (2015/16), fuel oil consumption had reached 1,831 M liters according to our estimates (See Table 4). Therefore, demand is expected to have risen 11% year-over-year. This increase, as it was pointed above, is related to a larger crop, which could well reach 125.5 MT, around 15.5 MT more that in the previous crop year.
i GEA-BCR: Rosario Board of Trade’s Strategic Guide for Agribusiness office.