Argentinian farmers are not hoarding their soybean stocks despite facing impediments, such as high export taxes and firm exchange rate, Emilce Terré, head of information and economic studies art the Rosario Stock Exchange (BCR) told S&P Global Platts.
Argentina is the world's third-largest producer and supplier of raw soybeans and the largest exporter of soymeal and oil.
Contrary to the general market perception, BCR notes that sales of soybeans by Argentinian farmers in the current marketing year (April 2020-March 2021) are in sync with the average yearly pace.
"We don't see Argentinian farmers hoarding bean stocks," Terré told S&P Global Platts in an interview. "Although sales have somewhat slowed down recently, we do not have a noticeable deviation from previous years."
The amount of soybeans yet to be sold, for instance, adds up to 8.8 million mt, while for the same period last year the figure was 9.9 million mt, Terré said.
"The bulk of current market year production was forward sold last year between August and December, as uncertainty surrounding the Argentinian presidential elections pushed soybean farmers to sell a larger portion of their output in advance," she said.
According to data from the Argentinian Ministry of Agriculture, by the end of December 2019 exporters had registered over 6 million mt of forward sales for the 2019-20 soybean crop, up sharply from 588,000 mt the previous year.
So far in the current marketing year, Argentinian soybeans sales account for nearly 70% of total production, in line with last year's sales volume, Terré said.
Exchange rate
When asked about the primary reasons for Argentinian farmers receiving smaller profits in 2020 compared with their Brazilian counterparts, Terré pointed to exchange rate and export tax issues.
"In my view, the depreciation of the Brazilian real in 2020, along with firm demand from China, boosted domestic soybean prices in Brazil, creating more incentives for farmers to grow the oilseed and export more, as Brazilian beans became more attractive to international buyers," Terré said.
While the Brazilian currency lost more than 40% of its value year on year for the most part of 2020 due to a weak macro-economic environment, Argentina's official rate of exchange was uncharacteristically far more stable, despite the country being in recession for the past few years, coupled with a mounting foreign debt of $323 billion.
As a result, while Brazilian farmers made record sales from their soybean stocks in the 2020 calendar year amid all-time high domestic prices, Argentinian farmers lagged behind comparatively.
Additionally, the gap between official and the unofficial exchange rates has discouraged the soybean farming sector in Argentina.
"Many inputs that Argentinian farmers need are valued in US dollars, Terré said. "So, inflation, pandemic-led global uncertainty and the gap between what we call the 'soybean exchange rate' (that is, what farmers actually get for selling their product once export tax has been deducted) and the 'financial exchange rate' (the exchange rate one can access to in the financial markets, such as bonds) contribute to make farmers choose the most conservative investment alternatives," she said.
Export tax
At the beginning of October, the Argentinian government ordered a temporary reduction in export taxes in a phased manner, which offered short-term relief for oilseed farmers, Terré said.
For soybeans the tax went down from 33% to 30% in October, 31.5% in November and 32% in December. It will revert to its original level of 33% in January, Terré said.
"We have found that during October, this tax reduction was effective, and the domestic price of soybeans for the farmers increased significantly," she said.
Along with the temporary export tax reduction for soybeans, the government also announced lower taxes for soybean oil and soybean meal exports.
For soy products the tax was lowered from 33% to 28% in October, 29.5% in November, 30% in December, and reverting to 31% in January, Terré said.
This tax reduction was also effective as more export sales of raw soybeans and soy products were recorded by the industry during October, she said.
So it can be deduced that high export taxes on Argentinian soybean means an additional burden on local farmers compared with their Brazilian counterparts, Terré said.
According to BCR, soybean sales in Argentina could slow in the coming months in the face of further challenges.
"For the remaining soybeans stocks in the current marketing year, amid rising prices that have not yet found resistance and uncertainty regarding the coronavirus pandemic-led macroeconomic issues and La Nina-induced dry weather conditions in the coming months, the decision-making process [farmers' sales] is expected to be more conservative than ever," Emilce said.
