Argentina farmers sit on beans awaiting weaker peso, lower taxes

Lower export taxes, a weak currency and sky-high inflation rates have meant Argentina's farmers carried over a record number of beans into this year, according to market sources, and that dynamic is continuing to deter selling.

Just 74% of Argentina's 57.8 million mt 2016/17 soybean crop had been sold by the end of 2017, Pablo Pochettino, a Rosario-based grain broker with Intagro, told Agricensus. 

That figure is the lowest on record and down 12 percentage points from a 10-year average of 86.6%, according to government data.

In terms of exports that was 7.3 million mt versus 8.7 million mt the year before on a similar sized crop.

“The gradual removal of retentions (export taxes), the expected devaluation of the peso and the traditional use of grain as a store of value are the main reasons why the Argentine producer still retains 15.1 million mt of soy from the last harvest,” Pochettino said.

Starting January 1, Argentina will start to reduce export taxes on soybeans at a rate of 0.5 percentage points per month until December 2019 – taking the tax from 30% currently to 18%, as President Mauricio Macri tries to stimulate the country’s vast agriculture sector.

And it is that, as well as a wide expectation that the peso will continue to soften from its current level of 19.3 pesos to the US dollar, that has deterred farmers from selling beans.

According to currency futures, the dollar will buy 20.28 pesos by April – a 5% fall in just three months.

Inflation

Argentina continues to battle high inflation, with the government being forced to revise upwards its inflation target this year from 12% to 15% after missing a goal in 2017 to cap inflation at 12-17%.

For the first 11 months of 2017 consumer prices hit 21% and this has provided another reason why soybean farmers have been reluctant to sell.

“You can see silo bags after silo bags that just act as banks in the fields for these guys. Why would they sell?” said a second analyst source who asked not to be named.

Predicting when Argentina’s farmers will return to the market is anyone’s guess, but Esteban Copati at Buenos Aires Grain Exchange said that without much higher prices in pesos, then farmers would only sell when they need to as they have to pay taxes on sales.

“Many of our farmers sell soybeans when they have to buy inputs. Right now they don’t have to buy inputs, such as seeds and fertilizers as we are in the planting season,” said Esteban Copati, head analyst at the Buenos Aires Grain Exchange.

Argentina’s planting season will start again in the fourth quarter of the year.

This Friday, the USDA is expected to write down its forecast for Argentinian soybean production for the 2017/2018 crop year to 56.33 million mt from its December forecast of 57 million mt, according to a poll of 19 analysts conducted by news agency Reuters.

However, with an increase in Brazil production expected to offset Argentinian output, global soybean prices are unlikely to firm over the week or so, leaving Argentina’s farmers to sit on beans until the currency falls.

“There is a lot of soy to sell and probably few opportunities to take advantage in the short term,”said Pochettino, who is also a regular contributor to Argentina’s Agroeducation – an education centre for agriculture.