April 19, 2014
Tuesday, December 3, 2013

Soy factor key to reserves debate

Two graphs illustrate the current state of affairs. On the left, the international price for soybeans. On the right, the dollar-peso exchange rate.
By Francisco Aldaya
Herald staff

Pool baron Grobocopatel admits up to 20% of harvest being withheld

The government yesterday insisted that soy farmers are hoarding more of the oilseed than usual, with Cabinet Chief Jorge Capitanich discouraging producers from engaging in what he defined as speculative behaviour, pinpointing such hoarding as one of the top causes behind the recent depletion of Central Bank reserves.

Capitanich described such hoarding as counterproductive for farmers considering forecasts of an imminent drop in soy prices.

After the agreement signed this week Capitanich said “there are newspaper headlines that say there is US$6.3 billion’s worth of unsold soy,” adding that retaining part of their harvest would really be counterproductive to farmers themselves, as “soy prices have seen a decreasing trend.”

Soy’s performance in Chicago yesterday followed the trend cited by the Cabinet chief, dropping 1.1 percent to US$485.49/ per tonne.

“We tell farmers clearly... don’t speculate on financial manoeuvres or with grain export companies,” Capitanich warned, referring to estimates of unsold soybeans published by El Cronista Comercial yesterday, arguing that the Kirchnerite administration has “generated an instrument precisely to guarantee (the right) conditions to sell.”

Calculating the proportion of this year’s harvest that remains unsold is not straightforward, however, with many farmers arguing they are simply waiting for the best moment to sell their produce, as any other merchants would. The context of persistent double-digit inflation that some estimate at more than 20 percent tied with a quickening devaluation, makes keeping a portion of harvests a viable savings mechanism, some in the sector argue.

Asking farmers to sell is a bit like “being paid your entire salary in May and asked to spend it all in one go,” a grains broker who requested anonimity told the Herald yesterday.

“This is why silos exist,” he said, adding that the figure of US$6.3 billion “is not correct, because there is no official data on volume harvests,” while soy prices fluctuate for countless reasons such as climate and competition, so middle and long-term price forecasts are not very reliable.

Soy magnate Gustavo Grobocopatel considered that “farmers are not having a good time, there is no speculation,” and upheld that “almost all soy has been settled.”

Still, he acknowledged sales have been a bit slower this year compared to the past. At this time of the year, it is normal to have around 90 percent of the harvest sold, Grobocopatel told Del Plata’s La Vuelta de Zloto.

“I would hope the (government’s estimated) amount actually exists, because that would mean farmers are better off, (but) in general farmers do not hold on to soy from one year to the next, rather they settle it entirely,” so the state’s coffers will be receiving an imminent cash injection anyway, as the sector would be settling remaining produce “in the next few months.”

The Los Grobo soybean producer added that if the Fernández de Kirchner administration’s figures are correct, asking grain export firms for a US$2 billion advance in the shape of BAADE energy bonds, as it was reported to have done over the weekend, would be logical.

Nonetheless, Grobocopatel backed up Capitanich’s claim that soy prices are dropping.

‘chronicle of a drop foretold’

In that vein, AGRIPAC consultant Pablo Andreani told the Herald that hoarding is the result of farmers not trusting the government and lacking “a viable investment opportunity for their pesos, which burn up with the current level of devaluation.”

Consequently, they consider that “unsold soy provides cover as the peso depreciates,” but farmers “do not take into account that the market will see a drop of US$40/ per tonne in the next two months.

Andreani suggested treasury notes valued at the official dollar exchange rate as an option for farmers in which to invest and thereby counteract the effect of “an elevated devaluation rate seen in the last two weeks.”

Unlike Grobocopatel, asked how much soy remains unsold in the country, Andreani said “there is talk of between 10 to 10.5 million tons,” and that soy sells at “US$342/per tonne today” while the “new harvest is at US$300/per tonne, a sure drop of US$/per tonne within the next two months, the story of a drop foretold.”

Andreani also said the request for grain exports firms to invest in the BAADE “has a direct relationship” with yesterday’s call to sell, because “if farmers don’t sell the soy, exporters cannot sell either, so the government tells multinationals: ‘Give me an advance for US$2 billion; which will be covered by settlements from the next harvest.”

“Farmers not selling does not affect reserves, but if reserves fall, as has been occurring, they can compensate that fall with the sale of their soy,” he concluded.

SRA defends farmers

Out in defence of farmers was Argentine Rural Society (SRA) head Miguel Etchevehere, a longstanding opponent to the Kirchnerite administration.

“Farmers harvest in April or May and live for 12 months on the revenue. All costs they must pay seeds, fertilizers, herbicides have risen throughout the year, so what the farmer is doing is an exercise in responsibility, as they know they are facing a year with 25 or 30 percent inflation and they must maintain purchasing power to meet their obligations,” he said in an interview with Radio América, maintaining that farmers “would sell all their soy if there were no inflation.”


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