February 10, 2016

Why are Argentine Farmers Slow Sellers of their Stored Soybeans?

One of the questions being asked in recent weeks is why haven't the farmers in Argentina been more aggressive in selling their stored soybeans. I am sure the reasons vary case-by-case, but one of the reasons being put fourth is that farmers feel that there could be more devaluations ahead for the Argentine peso and that waiting to sell would be an advantage. If the peso is truly free to float, then the market will determine if it is accurately valued or not, so I am not sure if this a valid argument of not.

Another immediate concern in Argentina is rapid inflation. After the devaluation of the peso in December, most labor groups in Argentina are now demanding hefty wage increases to keep up with inflation, so inflation is going to be an ongoing concern in Argentina for the foreseeable future. For farmers, their hedge against inflation is their stored grain and as soon as they convert their gain into pesos they start to lose money. Therefore, the shorter the time the money stays in their bank account, the better it would be.

With that in mind, the thought is that they will sell their soybeans as they need money to purchase the inputs for the next crop. Apparently, many of the medium and smaller farmers have sold some of their soybeans because they need the money, but many of the bigger operations have not sold very much. I don't know if that is true or not because we just don't have accurate data concerning the ownership of the soybeans. Most people do expect the sales to pick up as we get closer to the time when farmers need to purchase their inputs for the 2016/17 crops.

There is also continued uncertainty as to how many soybeans are actually being held by the farmers. Most estimates put the figure at around 10 million tons, but on the high end, there are estimates as high as 12 million tons or more. On the low end, there are estimates as low as 6 million tons.

Farmers in Argentina are expected to increase their wheat and corn acreage for the 2016/17 production. The first new crop to be planted will be wheat in May and June followed by corn starting in September or October, depending on the weather. So, sometime between now and about July, they will have to sell some of the stored soybeans in order to purchase the new inputs for their corn and soybean crops.