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Thursday, January 7, 2016

Reforms Drive Argentina Grain Export Revival


Last updated: January 6, 2016 1:25 pm

Reforms drive Argentine grain export revival

©Bloomberg
Argentina has come back to the international wheat market with a bang.
After Mauricio Macri, the new president, fulfilled his campaign promises byscrapping taxes and quotas on agricultural exports as well as devaluing the peso, the country has signalled it is ready to compete on the international grain markets.
The South American country has already surprised traders after winning the tender by Egypt’s grain authority late last month.
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“Argentina just came in and said ‘we want to sell’. They completely smoked Russia,” says Matt Ammerman, vice-president of eastern Europe and Black Sea region for commodity brokers INTL FCStone.
Egypt bought 120,000 tonnes of Argentine wheat after exporters offered the best rates, undercutting Russia, which has been one of the leading wheat exporters to north Africa. “It just says ‘we’re back, watch out’,” Mr Ammerman adds.
Immediately after taking power, the new Macri government announced that taxes on grain and beef exports would be removed, while a 35 per cent tax on soya bean exports and a 32 per cent tariff on soya meal would be cut by 5 percentage points. The currency was devalued so that the US dollar, worth about 9.8 pesos under the old official rate, is now trading at just under 14 pesos.
Rough calculations on the rise in returns on grains and soyabeans show that the value in pesos of wheat and corn without the export taxes is almost double to that under the previous regime, while the uplift in returns on soyabean and soya products is slightly lower at just above 50 per cent.
The country’s policy changes were “expected to increase export sales in the next few months,” according to officials at the US Department of Agriculture’s Buenos Aires bureau.
The country’s farmers, who have been holding on to their crops partly as insurance against rising inflation and partly in protest at the high taxes, have already started to sell. Argentina’s farmers sold $752m of grains and oilseeds in the last three days of 2015 according to exporter association Ciara-Cec. This was almost double the amount exported in the whole of November.
The changes had been widely expected although analysts and traders are unsure of just how much in exports of grains and soyabeans will come on to the market.
Juan Luciano, chief executive of Archer Daniels Midland, a leading US agricultural trader and a large exporter of grains in Argentina, told analysts in November that the “reduction in restrictions and licenses will be positive for our ag services business”.
However, more soyabeans and meal coming to market “may be a potential negative for the competitiveness of meal exports out of the US”, he added.
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The rise in Argentine agricultural exports comes as international markets are already groaning with plentiful supplies. Expectations of increased grains and oilseed sales from Argentina have led hedge funds and other speculators to take bearish positions.
The latest position report from the US Commodity Futures Trading Commission shows that speculative positions across grains and oilseeds in the week to December 29 reached a record net “short”, driving the aggregated bearish position across all agricultural commodities to an eight-month high.
Argentina is the world’s largest exporter of soyabean meal, and hedge funds reached the largest net bearish position in the commodity since October 2006, according to the CFTC data.
“The world is already so abundant with all things grains and oilseeds, [the new policy] will merely open another floodgate,” says Kona Haque, head of research at commodity trader ED&F Man.
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While sales in grains have been relatively active, the initial reaction among soyabean farmers has been cautious, say traders.
Guillermo Rossi, grains and oilseeds analyst at the Board of Trade in Rosario, a key agricultural shipping port in Argentina, expects sales to accelerate over the next few months, helped by lower global freight rates, which together with the sharp fall in the peso have made Argentina’s grains and oilseeds internationally competitive.
“This is an incentive to selling those huge stocks we have. This year’s sales will be very very important,” says Mr Rossi.
The impact on actual planting and production of crops for the 2015-16 season will be limited as wheat and barley are being harvested and corn and soyabean plantings are well in progress, says the USDA.
For next season and onward, wheat and corn areas are likely to rise “significantly” it says, adding that the difference in tax policies for soya and other agricultural productions “could potentially lower soyabean area and production as incentives to grow alternative crops increase”.
The world is already so abundant with all things grains and oilseeds, [the new policy] will merely open another floodgate
- Kona Haque, ED&F Man
While farmers are expected to enjoy the uplift in returns brought on by the new government’s policy changes, they are also likely to feel the rise in price of inputs such as imported seeds and fertilisers denominated in US dollars.
“The results are uncertain for the new marketing year, since some of the main input categories are exposed to inflation,” says Mr Rossi.
Argentina’s agricultural sector has also suffered a long period of under-investment in infrastructure and facilities under the previous government.
Ms Haque says: “[Macri] has to spend more time revitalising the agricultural sector before Argentina can become a grain and oilseeds powerhouse.”