Argentina building 'wall of soybeans'
Argentine government officials recently announced major changes with regard to currency that may impact the grain market and mostly Argentinian farmers. The most relevant announcement was that the citizens were free to purchase foreign currency, such as the US Dollar. As a result, the Argentine Peso devalued and one dollar was buying AR$ 7.99 last Friday. In the aftermath, the government have limited the purchases of dollar up to US$ 2,000 per person each month.
An Argentine Peso with an official value closer to the parallel dollar was a long-time demand from grain exporters that wanted to profit more with external sales. Now, on the other hand, the benefits are just "partial" for those local farmers, according to Eduardo Buzzi, president of the Argentine Agrarian Federation. The reason is that the price of inputs are also affected by the official US dollar value and not all farmers are capitalized enough to hold it for that long. "Nearly 80 percent of the grains will be liquidated, but 100 percent in some cases where there are debts. Some might stay with 15 to 20 percent of reserves because they can hold longer and don’t trust the economy", Buzzi told reporters in a press conference.
There is a broad consensus among experts from Argentina that an untrustworthy economy might make farmers to hold their stocks of soybeans, estimated at seven to eight million tons or US$ 4 billion. "This is a very complicated panorama. There is a big perspective of the devaluation (of the local currency). There are partial measures of the government every day and a significant lack of confidence in the market. The government had said for long that would never devalue the currency", explained Pablo Fraga, a market analyst at BLD, a company from Rosario.
According to Fraga, significant sales of soybeans would not happen before the middle of March, when the harvest of the new crop takes place. In the meantime, Guillermo Rossi, a market analyst at the Rosario Board of Trade, believes that the sales will depend of the expectancy of better prices of the oilseed in Chicago. Rossi also thinks that the farmers that can sell wheat will do it first. "Wheat at the domestic market is probably the next thing that will happen. A low volume was sold and there is a big stock (estimated at nine million tons). There is also a very small allowance to export (1.5 million tons)", explained Rossi. On wheat exports, Argentine farmers need permission quotas to sell at the global market.
Currently, the government of Argentina is in dire need of more reserves, especially in US Dollars. Rumors say that it would raise retentions rates on soybean exports (now at 35%). If that is confirmed, the rural sector of Argentina might strike. But given the fact that the political capital of the Kirchner government is lowering, that becomes unlikely. "The Central Bank of Argentina keeps losing reserves. The solution would be more retentions because the field is the only sector that generates dollar, but there is no political capital left for that. It is just a rumor", said Pablo Fraga.