Argentina’s government recently announced incentives for the country’s farmers to sell more soybeans. In a bid to boost exports and hard currency reserves, farmers can get a better exchange rate for their soybeans. Dr. Michael Cordonnier, an agronomist with Soybean and Corn Advisors, Inc., says it will have a short-term impact in the country and on the world market.
“This favorable exchange rate is good through the end of September. Currently, Argentine farmers are about 10 percent slower sellers compared to last year. They’re going to sell after this exchange rate because it’s like a gift for them. The exchange rate is 139 pesos to the dollar, but you’re allowed to do soybeans now at 200 pesos to the dollar. So, they are going to sell. And by the end of September, the Argentine farmer might be up to normal sales, maybe a little bit ahead, but this program ends at the end of September. After that, it goes back to where it was before. When you get to October 1, the farmers are gonna stop selling again or, at least, sell slower.”
He says the move will put more Argentine soybeans into the world market and prices will likely drop, but the impact won’t last long.
“There’s gonna be like a flush of soybeans coming on and also meal and oil. Now in Argentina, mostly, it’s meal and oil that comes out. So, the processors like the Cargills of the world were running maybe 50 to 60 percent capacity in their crush facilities because they couldn’t get the soybeans. Well, now they’ll get it, so there’ll be a little flush of soybeans, meal, and oil for the next couple of weeks, but we’re kind of back into the same situation start October.”
Argentina is the world’s biggest soy oil and meal exporter and the third-biggest soybean supplier. Cordonnier talks about why the government made this move.
“First, the farmers are slow sellers because they were waiting for a devaluation. The official rate, right now, is 139 pesos per dollar, but the black market rate is twice that. So, the market was saying there must be devaluation, so the farmers want to wait for the devaluation Well, that didn’t happen. But instead, the government said, okay, we’ll raise it to 200 pesos to the dollar. It’s not a devaluation per se, but to the farmer, it’s almost the same thing as a devaluation because they put more money in your pocket when they sell to the crushers in Argentina. After all, the crushers are allowed to exchange their exports at the 200 peso rate versus 139. So, it’s a gift to them, and they’re passing on a gift to the farmer, but this is only temporary.”
He also says the inflation rate in Argentina will likely hit 90 percent by the end of 2022.