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August 23, 2017

Slow Selling Results in Shortage of Grain Storage in South America

In the two largest grain producing countries in South America, Brazil and Argentina, the story is very similar. Farmers are reluctant to sell their crops due to low prices and the hope that prices will improve going forward. Many grain silos in Brazil are still filled with the last soybean crop, which is forcing grain elevators to pile the newly harvested safrinha corn either on the ground or to purchase numerous silo bags to temporarily store the corn. There are already concerns in Brazil about where they will store the winter wheat crop the next soybean crop which will start to be harvested in late December or early January.

The situation is similar in Argentina, but with the added wrinkle of soybean export taxes. When the Macri administration took over in Argentina, they eliminated the export taxes on corn and wheat and they reduced the soybean export tax from 35% to 30%. Argentine farmers were very disappointed that the soybean export tax was not reduced even more. In a compromise, the administration agreed to start reducing the soybean export tax 0.5% per month starting in January of 2018.

When the Macri administration eliminated the export tax on corn, they also said they would no longer interfere in the export market if higher commodity prices threatened to increase domestic inflation. That combination of actions persuaded Argentine farmers to increase their corn acreage, which is something they wanted to do in order to return to a more normal crop rotation. For the 2017/18 growing season, estimates are that they will increase their corn acreage again between 5-10%

Recent "rumors" out of Argentina indicate that the administration may be reconsidering how the soybean export taxes may be reduced. The rumors are based on the premise that the government needs the revenue from that tax and they would be hard pressed to give it up. At this point, these are strictly rumors, the government has not indicated that they are reconsidering the current tax plan. If these rumors persist going into planting, which will start in September and October, Argentine farmers may be even more inclined to increase their anticipated 2017/18 corn acreage.

Bottom line - There could be a lot of pent-up soybean and corn supplies waiting to come onto the market in the months ahead. Brazilian farmers are slow sellers. Argentine farmers are slow sellers. American farmers will probably be slow sellers. Additionally, Brazilian farmers will start harvesting their next soybean crop in early January.

If everybody is waiting for improved prices to sell the remainder of their grain, this excess supply could weigh on the market.