Argentinian farmers are holding on to grains as political uncertainty ahead of the general election in October has led the peso to slide.
Farmers have been skeptical of trading ever since President Mauricio Macri, known to be more trade friendly than his predecessors, was beaten by Peronist Alberto Fernandez in primary presidential elections on August 11, causing the Argentinian peso and stock market to crash.
Macri has removed taxes on exports that had marred Argentina's grain trade, with agriculture an important part of the country's economy. Investors fear a return of opposition Peronists to power will bring back interventionist economic policies that could be a setback for grain exports, as well as other populist measures.
Farmers do not want to sell grains, as the peso is losing value, INTL FCStone chief commodities economist Arlan Suderman told S&P Global Platts. This may cause grain exports from the South American country to slow until the general elections, scheduled on October 27, analysts said.
The Argentinian peso has fallen 24% against the US dollar since Macri's poor performance in the primary elections and the S&P MERVAL Index of the Buenos Aires Stock Exchange has fallen 34.4%.
Corn and wheat are the major grains produced and exported by Argentina. According to estimates from the US Department of Agriculture, Argentina will contribute 7.5% to global wheat exports in December 2018-November 2019 and 20.4% to the world's corn exports in March 2019-February 2020.
PESO DEPRECIATION
The depreciation in the peso could have actually helped grain exporters but the uncertainty around the outcome of the elections has kept farmers from selling.
"The farmer is more worried about currency volatility currently," Suderman said. "And he is worried about a return to previous policies that would limit his ability to export. The mood in farm country in Argentina is very low right now."
Argentina Up River corn on an FOB basis has dropped 10.8% since August 11 to $145.77/mt as of September 12, S&P Global Platts data showed.
Similarly, Argentina Grade 2 Up River wheat has fallen 4.6% from August 12 to $229/mt as of September 12, according to the information available on the International Grain Council's website.
"The devaluation of the peso could in principle be a stimulus for producers but, unfortunately, the exchange instability, derived from the political uncertainty, could cause some retraction in sales," Argentinian grains export companies chamber CEC-CIARA spokesman Andres Alcaraz told Platts.
The Argentinian government on September 1 announced capital controls in the hope of supporting the value of the peso.
Capital controls "may answer some uncertainty regarding [grain] selling decisions in the short-term, but it does not solve the longer-term problem," Suderman said.
POLICY ISSUES
Hefty taxes were imposed on Argentina's main grains from 2002, which led to reduced plantings for some years thereafter. For many years, corn exports were taxed at 20% and wheat exports at 23%, according to a report from the Australian Export Grains Innovation Centre.
Macri won the 2015 election with wide support from the farming sector. He since removed the export taxes on corn and wheat, stimulated grain production and encouraged investment in industry infrastructure.
"After a marked change in government and economic policy in 2015, Argentina's grains industry has rapidly changed and Argentinian grain exports have increased," the AEGIC report said.
Wheat exports have risen 145% since 2014-15 (December-November) to 13 million mt in 2018-19, according to the data from the USDA.
Corn exports have risen 56% since 2014-15 to 29.5 million mt in 2018-19 (March-February).
Some taxes were re-imposed by Macri in September 2018 with limits because of financial and inflationary pressure. According to AEGIC, despite re-imposing export taxes, growth in grain production and exports was highly likely, provided political and economic stability.
PLANTING DECISIONS
Argentinian farmers are keenly watching the upcoming elections and may incorporate potential policy shifts in their planting decisions based on its outcome.
According to Suderman, farmers in Argentina may make a shift in acreage toward soybeans as they expect a return of policies that had put limits on corn and wheat exports. Even though there are export taxes on soybeans, planting costs are lower than for wheat and corn.
Argentina is already the world's third-largest producer and exporter of soybeans.
Soybeans and corn can be planted twice in a year in the country. Early corn is normally planted in Argentina in September and October, while wheat has already been planted.
