South America Calling

How much soybean does South America have stocked? It is one of the questions on the mind of the market and one DTN Analyst Todd Hultman discussed in a recent blog post.

An interesting sub-question is how big are Argentine farmer stocks?

This delicate issue was something that I discussed with various sources during my trip to Argentina last week.

As Argentina falls deeper and deeper into economic crisis, the farmer's instinct is to stockpile his soybeans.

It is an instinct honed during decades of economic instability and makes perfect sense in the current environment.

Over the last 18 months, Argentina's governors have sought to maintain the Argentine peso artificially strong, aided by tight restrictions on the purchase of dollars by Argentines.

The policy has hurt farmers because they are forced to accept prices in pesos, based on dollar conversions at the official exchange rate, while they can only change the pesos back to dollars on the black market, where they are currently worth 30% less.

The Argentine government allowed the peso to slide in January, from around 6 to the dollar to 8 to the dollar and lifted some restrictions on dollar purchases by Argentines.

The devaluation did help farmers somewhat, but the easing of restrictions is too limited to facilitate the conversion of soybean pesos back into dollars.

Meanwhile, uncertainty over the country's economic future remains rife.

With inflation surging and Argentina's recent history of sequestering bank savings, farmers have been holding as many soybeans in silo bags as possible this year.

The government estimates that farmers have 6 million metric tons (mmt) stocked from last year. That's around 12% of total production.

Since the government relies on grain export tax revenues for hard currency, it is anxious for farmers to sell.

But local analysts think that figure is exaggeratedly high as farmers simply don't have the financial support to hold out for a whole year and sold to finance the current crop.

In fact, farmers probably only hold 3 mmt to 4 mmt, which is about double normal carryover stock levels, they say.

So, why the disparity between the government and the farmer figures?

Obviously, each side has its bias, but part of the answer may be smuggling.

With official soybean exports taxed at 35% and the official dollar 30% below the black market rate, there is a huge incentive to spirit the soybeans over the border and a large margin for bribes.

As many as 4 mmt of soy may have slipped over the border to Brazil, Paraguay and Bolivia this year, one farm source estimated.

(AG)

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