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News from Argentina
04th November 2015
Thai Trade Center, Buenos Aires
By M. Fernanda López Ortiz
Farm exports plunge ahead of runoff
The election season has dramatically changed the agricultural landscape in Argentina.
Exporters are now more confident than ever that profits will soar next year, creating a short term impact of
plunging sales abroad and reduced cashflow in the Central Bank’s coffers, although that could change in 2016.
A report from the CIARA-CEC grain exporting chambers yesterday said that last week was the worst of the
year in terms of dollars brought into the country, as the sector’s businessmen see holding onto grain as the most
profitable course of action ahead of economic reforms that may include a devaluation and lower taxes for the sector.
Exports last week fell 68.5 percent in terms of a yearly comparison, reaching only US$192 million, — far
below the normal weekly average.
The only comparable period in terms of sales came in mid-February, when US$180 million was brought in
over a short, three-day working week amid Carnival celebrations.
February is usually a weak month in terms of sales, as the first quarter of every year sees little to no soy bean
exports due to seasonal reasons.
Last week’s result was comparable to the worst week of that first quarter. Although, output was already
expected to fall for 2016, reports from the ground say sowing has somewhat recovered in the late stages of 2015, which
might help 2016’s harvest from falling after all.
Candidates’ promises
The consensus among farmers is that the sector will benefit from better incentives in 2016, making profits soar.
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The two remaining candidates in the presidential race, Let’s Change’s Mauricio Macri and Victory Front
(FPV)’s Daniel Scioli, view the sector as crucial for obtaining the dollars necessary to exit the so-called “clamp” on
foreign currency trade, promising the end of export duties on corn and wheat as well as lifting export quotas.
Macri, however, is favoured much more by the sector, as he has also promised to end the restrictions on the
dollar trade in the first day of his potential presidency, a move that could bring the official dollar price quickly upwards,
making exports even more profitable.
Scioli, on the other hand, has said he opposed any strong devaluation and says he will only end the restrictions
on the dollar trade “gradually.” Shock reforms and strong devaluations would put the burden of macroeconomic reforms
on the shoulders of wage-earners, Scioli’s advisers argue.
Macri was also the first candidate to promise a reduction of five percentage points per year in export duties on
soybean. Other candidates had doubts about the viability of reducing that levy, as it could cost the state’s coffers too
much in missing income.
Macri’s surpisingly strong showing in the presidential election’s first round on October 25, forcing a runoff with
Scioli after coming only two points behind him, meant that expectations in the sector rose higher than they were last
week.
A large part of Macri’s support came from the country’s richest rural districts in the provinces of Buenos Aires,
Córdoba and Santa Fe.
Soaring profits
A report from the Rosario Stock Exchange, the biggest financial hub for grain transactions in the country, says
local soybean prices for May 2016 rose six percent in October, moving from US$211 to US$225 per tonne.
“The rise was mostly motivated by the expectations of a new agricultural policy following the elections on
October 25 and the runoff on November 22,” the report said.
According to the Rosario Stock Exchange, those rising future soybean prices would mean that profits would
soar by 16 percent per hectare in the more fertile “nucleus” close to Rosario’s ports.
Profits per hectare there could rise from US$280 to US$324 in May, when the harvesting season is at its peak, if
those prices end up materializing.
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Market analysts predict most crops’ local prices could rise as soon as January. Future markets for the New Year
improved by four percent last month, while corn rose six percent and wheat nine percent.
Central Bank
While the mood amid grain producers has been much improved by the recent news, the opposite reaction could
be expected from Central Bank authorities, as reduced exports would mean less foreign currency coming into the country
to strengthen its much-demanded dollar reserves in the short term.
The Central Bank is struggling with a foreign trade balance that stands at near zero, with exports equalling
imports despite the limits imposed on the latter, and foreign currency reserves are falling as a result.
The fact that reserves have also been used to pay for debt and individuals’ demand for dollars has meant that the
Central Bank’s coffers currently have US$7 billion less than they did in August, with reserves amounting to US$26.9
billion yesterday.
Farmers and other exporters think that the Central Bank will be forced to devalue the peso to some degree after
the elections in order to make dollars more expensive and thus protect the remaining reserves.
But the degree of such devaluation would be different depending on who wins in November.
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Source: Buenos Aires Herald Newspaper
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