Dec 18, 2015

Lower Taxes & Devalued Currency to Spur Grain Sales in Argentina

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Argentine farmers are expected to sell much of their stored grain in order to take advantage of a devalued peso and a reduction in export taxes announced by the government. President Macri signed a decree earlier this week eliminating the export taxes on corn and wheat which were 20% and 23% respectively. He also lowered the export tax on soybeans from 35% to 30%. In addition, the Argentine peso is now allowed to float and estimates are that the currency could devalue as much as 30%. A devaluation of the currency would be the same thing as a price increase for the Argentine farmers.

As a result of the tax reduction and depreciated currency, at least US$ 10 billion is expected to flow into Argentina over the next three months as farmers sell their stored grain. That is according to journalist Luis Henrique Viera from Portal Agriculture. Farmers in Argentina have been storing much of their grain over the last few years as a hedge against inflation, which is currently in the mid-20% range. Much of the grain has been stored in large white silo bags that are a common site in the Argentine countryside.

The amount of grain that has been stored by the farmers is unclear because it was not in the farmer's interest to reveal how much grain was stored. For soybeans, it is estimated that between 10-15 million tons are in the hands of the farmers, but it could be less than that. The amount of corn in farmer's hands is estimated at 1-2 million tons at the most. Increased grain sales from Argentina is expected to put downward pressure on international grain prices.

More long term, the improved prices for grain in Argentina is expected to spur additional production especially for corn. The corn acreage in Argentina could expand by 20% to 30% in 2016/17 as farmers revert back to a more normal rotation between corn and soybeans. As a result, soybean acreage in Argentina might actually decline in 2016/17 as farmers opt for more corn production. President Macri would like to see all grain production in Argentina increase significantly during his first term in office. He set a goal for farmers of increasing the country's total grain production during the next four years from the current 100 million tons to 130 million tons.