Politics may prompt soy glut

Politics will continue to play a major role in grain markets in 2019-20.

Argentina’s recent election results could have a profound impact on corn, soybean and wheat markets, said an analyst who closely follows South America’s grain and oilseed sector.

Incumbent Mauricio Macri is on his way out, and the new president will be Alberto Fernandez.

Not much is known about Fernandez, who was a behind-the-scenes politician. His vice-president, Cristina Fernandez de Kirchner, is the one who is drawing the attention of the nation’s farmers.

“He’s sort of opaque. We don’t quite know what he stands for,” said Michael Cordonnier, author of the Soybean and Corn Advisor.

“But we sure know what she stands for.”

Kirchner was president for two terms, from 2007-15. Her husband was president before that from 2003-07.

“During her period in office they were very interventionist, so they had very high export taxes on soybeans, corn, wheat and beef,” said Cordonnier.

Farmers in Argentina anticipate they are in for more government intervention in grain markets based on Kirchner’s track record.

Politics have already played a big role in grain markets in 2019.

A trade war between the United States and China disrupted world corn and soybean markets, while Canada’s detention of Huawei chief financial officer Meng Wanzhou led to reprisals in the form of vastly reduced Canadian canola and pork exports to China.

Argentina is in financial turmoil. Taxing commodity exports is one way for the government to generate much-needed revenue.

Commodity export taxes accounted for 11 to 12 percent of total government revenues at one point during Kirchner’s reign with the soybean tax peaking at 35 percent.

Macri eliminated the tax on corn and wheat when he came into power, and implemented a plan to reduce the soybean tax to 18 percent by 2022.

However, he eventually became so desperate for cash that he raised the corn tax to seven percent and halted the reduction in the soybean tax at 25 percent.

Cordonnier said Fernandez is facing “a world of problems” as he prepares to take office in December.

Argentina’s inflation rate is about 50 percent, interest rates are around 70 percent and the peso has lost 85 percent of its value in the last four years.

Fernandez was not forthcoming about his proposed economic policies during the election campaign.

“He avoided a lot of details because they don’t have a lot of details on how to right the ship,” said Cordonnier.

He thinks Kirchner will be the real power broker in the new government. He suspects she didn’t run for president because she knew she would lose because of her previously polarizing policies. Instead, she surprised everyone and ran for vice-president.

Argentina’s farmers worry Kirchner will start ratcheting up export taxes to generate more government revenue.

“I think this is going to have a big impact on the crop mixture going forward,” said Cordonnier.

When Kirchner was in power she limited the volume of corn exports to oversupply the domestic feed market and control food price inflation.

Farmers never knew what the price of corn would be because they couldn’t get an international price for their crops, so they switched to growing soybeans.

“As a result, about three or four years ago the farmers in Argentina planted six times more hectares of soybeans than corn,” he said.

Farmers were ignoring basic agronomy and growing soybeans on soybeans. Macri’s policies changed that dynamic, and growers planted a more reasonable three times more soybeans than corn.

However, Cordonnier worries the pendulum is about to swing back again.

Farmers in Argentina seed corn in two phases. The first is in September and October when about 35 percent of the crop is planted. The next is in December.

“They’ve got a month here to contemplate what to do,” said Cordonnier.

He suspects farmers will likely switch about 750,000 acres out of corn into soybeans this year and continue that shift in a bigger way in years to come.

Cordonnier believes the export tax on soybeans will be on the rise, which will establish a higher floor price for U.S. soybeans, which in turn has an influence on Canadian canola prices.

Argentina ranks first in the world for soybean meal exports, third for corn and seventh for wheat.

There is a considerable incentive to process the soybeans at home and export the oil and meal because the tax on oil and meal exports is always three percentage points lower than it is on seed exports.

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