Sep 13, 2022

Favorable Exchange Rate Spurs Soybean Sales in Argentina

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

The Argentine government announced last week a preferential exchange rate for soybean export sales for the month of September. Instead of exchanging the dollars at the official rate of 139 pesos per dollar, for the month of September, dollars generated by soybean sales can be exchanged at the rate of 200 pesos per dollar. This favorable exchange rate generated a flush of new farmer sales last week.

As of August 31st, before the preferential exchange rate was announced, Argentine farmers had sold 52.3% of the 44.0 million tons of soybeans produced in 2021/22 compared to 62.8% on August 31, 2021. Soybean sales last week may have totaled as much as 5 million tons, and if that is the case, farmer sales in Argentina have probably caught up to last year.

The question is what happens after September 30 when the program ends. Farmers will probably be reluctant sellers once again and to prevent that, the government announced higher interest rates if farmers must finance storage of the soybeans. If a farmer retains more than 5% of his 2021/22 production, the interest rate on financing the storage would be 120% of the prime rate, which is now about 70%. So, the interest rate on the financing would be about 84%.

It is unclear how such a program would work in practice. The basic question is how would the government determine how much a farmer produced and how much he has retained? It seems to me that it would take on-farm inspections to make that determination. Good luck with that!