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Argentina’s Strong Corn Exports Not Expected to Last

Political winds of change to cause increase in soybean production.

PORTO ALEGRE- Brazil -- Argentina's new President will be behind a shift to more soybean acres and fewer corn acres, analysts say.

From March to October of 2019, Argentina’s corn exports were higher than Brazil’s, and the country was No. 2 in world corn exports – just behind the U.S. In that period, Argentina exported 36.5 million metric tons of corn. The previous record was 21.5 million metric tons during the 2016/2017 crop.

Most analysts, on the other hand, agree that this trend will reverse. When Mauricio Macri assumed the presidency in December of 2015, he encouraged farmers to plant different types of grains and cereal by dropping the export taxes on it. In April of 2017, a drought cut half of the Argentine grain production, generating a serious fiscal and monetary crisis. Macri used again the resort of export taxes of 4 Argentinian pesos for every dollar exported of grain. Currently, $1 buys $63 pesos.

Last October, Alberto Fernandez won the presidential election by 48% to 40% against Macri. For most, as Fernandez was backed by vice-presidential candidate and former president Cristina Kircker, high export taxes would be in place again.

Analysts say that in a scenario with less profitability, crops like corn, wheat, or barley are less attractive to Argentine farmers. “I believe that what we are going to see is a monoculture of soybeans,” said Gustavo Lopez, an analyst at Agritrend, in an interview with Bloomberg.

An analyst who collaborates with one of the so-called ABCD trading companies (Archer Daniels Midland, Bunge, Cargill, Louis Dreyfuss) in Argentina talked off the record with “After August, when primary votes demonstrated strong support for Fernandez, there already was a strong shift from corn to soybeans. Soybeans require a lot less investment per acre.”

In 2018, corn production in Argentina was 51 million metric tons and soybean output was 56 million metric tons. For this year, the most likely numbers are 45 million metric tons of corn and 56 million metric tons of soy, according to the analyst. The Buenos Aires Cereal Exchange says the new corn crop is 40% planted.

During this year, there was also a record of Argentinian soybean meal exports from April to August with 20.7 million metric tons exported. The reason for that: lower margins. “The industry was very aggressive in exporting to avoid accumulating stocks and use its capacity,” the analyst said.

Other News, Broker Goes Bankrupt

The fifth-largest broker and trader in Argentina, BLD, based in Rosario, filed for bankruptcy. The brokerage used to pay the best price for grain farmers in the region. However, the better price was paid through selling several months later than what was told to farmers. The company could have profits with bonus and stocks in dollars.

As a fast-growing company, BLD invested a lot in U.S. dollars. However, with a devaluation of 30% of the Argentinean pesos and restrictions imposed by the Argentinean government with limits to buy foreign currency first at $100,000 and later with a cap of just $200, the business became unsustainable.

Nearly 1,500 farmers are now defaulted by BLD and over 300 people lost their jobs. Authorities still will investigate the company to determine if there was an intentional fraud.

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