Argentina Crop Outlook - 3
Argentina Soy Sales Accelerate During Last Month
ROSARIO, Argentina (DTN) -- January is normally a sleepy month on Argentine grain trading desks.
But last month, most offices were as busy as any month last year.
That's because farmers have opted to offload their massive soybean stocks after newly-elected President Mauricio Macri devalued the Argentine peso in December.
"Farmers see the new crop coming and are looking to take advantage of current off-season prices," said Patricio Lagger, a grain market analyst at the BLD brokerage in Rosario.
Over the last few years, Argentine farmers had held on to ever-larger stocks of soybeans as a hedge against economic volatility and a play on the inevitable devaluation of the Argentine peso.
As much as 15 million metric tons of soybeans were still in Argentine farmers' hands in November, seven months after harvest. But the outlook changed dramatically following the surprise victory of farm-friendly Macri in December's presidential election. The new president followed through on his promise to devalue the peso and cut export tariffs, entirely in the case of corn and wheat and by five percentage points to 30% in the case of soybeans.
The 40% devaluation was a big deal. Previously, farmers had been forced to sell using an official exchange rate that put the peso as much as 50% stronger than on the black market rate.
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Local prices surged, even before the election result, and selling ramped up in December. But business really accelerated in January.
There are a couple of reasons for this.
Farmers wanted to see if the transition to a floating exchange rate would be successful. It has proven to be so.
"The new government conducted the devaluation really professionally and ensured stability. The transition has been excellent so far," said David Hughes of Traulenco, which manages 15,000 acres of grain land, mainly in Buenos Aires.
Meanwhile, the Argentine peso did not devalue quite as much as some had expected. The peso was trading below 14 to the dollar for much of December and January when many were foreseeing 15 and higher.
But prices rose further in the second half of January as Argentina's massive crushing industry competed for raw material in order to keep plants running -- Argentina is currently only using 65% of installed capacity -- and the peso weakened a little more.
As a result, farm stocks have shrunk to somewhere between 5 million metric tons and 8 mmt.
"Farmers saw that the Argentine peso wasn't going to dive, got an extra price incentive and so chose to sell," said BLD's Lagger.
Meanwhile, the price of spot soybeans has soared to 3,370 pesos per ton ($6.60 USD per bushel), up from 2,200 pesos per ton ($4.31 USD per bushel) at the start of November.
Soybean sales have only been tempered by the fact that corn sales, as a proportion of the crop, have been even quicker.
Traders estimate that around 150,000 metric tons of corn has been traded each day over the last few weeks, with around 70% of those forward sales of the upcoming 2015-16 crop.
Corn prices are even more attractive than for soy, because the 20% export tax has been cut out of the price.
It seems clear that Argentina will work through stocks, leaving a total carryover a little above the habitual 5 mmt, including crusher's stocks, but not massively so.
Alastair Stewart can be reached at alastair.stewart@dtn.com
Follow him on Twitter @astewartbrazil
(ES/BAS)
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