Argentinian soy sales lacking despite export tariff reductions

by Eric Francucci, Analyst, HighQuest Partners

On December 17th, recently elected Argentinian president Mauricio Macri officially eliminated export tariffs on wheat, corn, and beef, and reduced the soy export tariff by five percentage points in an effort to incentivize Argentinian farmers to sell $11.4 billion of hoarded crops, thereby generating cash flow for the depleted national reserve.

Over the past ten years under former President Nestor Kirchner and then his wife Cristina Fernandez de Kirchner, the Argentine government had imposed export restrictions and high tariffs as a way to increase government revenue. However, in the country which relies on grain and oilseed exports for approximately one third of its export revenue, farmers responded by hoarding soybeans, which ultimately drained the country’s central bank reserves.

The reduced tariff appeared to work; in the last three days of 2015 alone, the country’s farmers sold grains and oilseeds valued at $752 million, bringing the value for the year to $20 billion. But soy sales have not continued to abound at a rate the government had originally intended. In a statement released on January 4th, Argentinian Secretary of Agriculture Ricardo Negri expressed “hopes… (that the) wheel begins to turn,” with soy sales about “seven days delayed.”

Price instability and market uncertainty has caused many Argentinian farmers to hold their soy reserves in hopes to remain liquid until more favorable market conditions present themselves. Farmers also expected a cheaper Argentinian currency of “14 to 15, while it is currently at 13.4” stated economist Jorge Ingaramo. Currently, soy’s purchase power of a domestic commodity basket is 25% lower than the last twelve year’s average, according to economist Juan Manuel Garzón.

Prices paid for Argentinian soybeans both by domestic processors and exporters, have fallen since the export tariff decrease, continuing to delay the soy sales in Argentina. By January 4th, prices offered by Gran Rosario processing facilities had decreased to $ 2900 pesos/ton, $ 100 (3.3%) less than the prior week’s, resulting in a decrease in sales from 80,000 tons to a mere 8,000 tons. Argentinian ports of Bahía Blanca and Necochea offered prices of $ 2700 and 2650 pesos/ton, or $ 50 less than the prior week.

This Argentinian effort to increase supply in the market comes at a time with global markets already struggling with oversupply. Soybean prices have sagged in the first days of 2016 on the CBOT, with INTL FCStone commenting that, “2016 is starting off with a thud, mainly due to China(‘s economic weakness).” Weather has also improved in Brazil suggesting a bumper harvest, meaning a strong source of supply in the Southern Hemisphere. These effects, coupled with the uncertainty surrounding the value of Argentinian currency, could continue to delay the timely release of Argentinian soy stocks into the market.