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Argentina's wall of soybeans

11/19/2013 @ 3:27pm

For outsiders, it may be hard to understand, but Argentinian farmers have kept stored 16 million tons of soybeans, or an estimated value of US$ 7.4 billion. When those beans are shipped, it would impact the market significantly. However, there is no clue as to when the market would be inclined to do that.

One of the reasons for the retention is to weaken the government of Cristina Kirchner, an administration considered hostile to farm business. A model started in 2003 by Kirchner's husband taxes the soybeans exports at a rate that reached 40%. Through these taxes, the Argentinian government is able to subsidize gas tanks, bus rides in Buenos Aires, medicines, and electricity, and it tries to end a huge debt crisis started in 2001.  

This is part of the scenario that makes Argentinian farmers unhappy with the government. Jorge Isern, president of Rural Society of Rosario, adds that farmers do not really want confrontation, but they have no other option. "What we are doing is completely within the law. The soybeans remain in power of those who produced. It is more and more risky to produce soybeans in Argentina because the Argentinean Peso (currency) has been devaluated, there is a prohibition to buy more trustworthy currency, and there are restrictions on the purchase of properties. It is reasonable that we do it in order to maintain our purchasing power," explains Isern in an interview with Agriculture.com.

The strategy partially worked during this year's parliament election, when the Kirchner coalition had a partial loss. Still, the market does not know when farmers are going to start to effectively sell the oilseed. Currently, a new crop is being planted, and a significant part of the soybeans are being stored in the silos of exporters. The total stock in the country is 36.5 million tons.

According to Juan Pablo Cañon, a market analyst based in the greater Buenos Aires area, farmers are speculating to sell the grains at a better value. Cañon says that the Argentinian Peso will devaluate a lot, and that would benefit exporters. "They will retain the soybean until their finances allow them to do it. We have a gap of 65% between the official value of the peso (AR$ 6) agains the U.S. dollar compared to the parallel dollar (AR$ 9.90), and an annual 30% inflation index. That's why producers keep the soybeans as a value reserve. Would take a lot longer to sell compared to previous years," summarized Cañon.