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July 3, 2014

Economic Uncertainty in Argentina make Farmers slow Sellers

Farmers in Argentina have every incentive to be very slow sellers of their soybeans and corn crops. It appears that Argentina will technically go into default again on its bond payments and they will have until the end of July to negotiate a settlement with the bond holders. Thus far, the government has repeatedly refused to negotiate with the bond holders and it remains unclear what path the country will choose going forward. This economic uncertainty has made farmers very cautious in their selling.

Over the next month or two farmers in Argentina will only sell enough of their grain production to pay production loans and immediate expenses and they will hold back as much of their grain as possible as a hedge against a potential peso devaluation, default, inflation, etc. Argentine farmers feel it is much better to have grain in the silos than pesos in the bank.

This uncertainty could also impact their planting decisions for the next growing season, which will start in September. In times of uncertainty, farmers in Argentina tend to gravitate toward their most reliable crop, which is soybeans. Soybeans are cheaper to plant than corn, their yield is more reliable than corn, and the government does not interfered in the soybean export market.

It's not entirely positive of soybeans though. The down-side for soybeans is the 35% export tax imposed by the government. The Kirchner administration is desperate for the additional tax revenue generated by the soybean exports in order to replenish their dwindling currency reserves. The government continues to talk about the need for farmers to sell their soybeans, but thus far it has only been rhetoric. The economic situation in Argentina seems to be heading for a showdown and what the government does concerning farmer selling (if anything) remains to be seen. Stay tuned.