March 20, 2014

Argentine Farmers Still Hold 5 mt of Last Year's Soybean Crop

As the combines in Argentina enter the fields to start harvesting the 2013/14 soybean crop, Argentine farmers are still holding onto 5 million tons of last year's soybean crop. According to analysis by the Rosario Grain Exchange, farmers have increased the pace of sales of last year's soybean crop over the last several weeks to take advantage of higher prices and to clear out storage space for the 2013/14 crop.

Argentine farmers have been holding onto last year's crop due to the deteriorating economic situation in the country. Their stored grain was a hedge against inflation running at 25% to 30% and they did not want to sell their grain while there was a threat of currency devaluation. Inflation remains an ongoing threat, but it appears that the significant devaluation of the Argentine peso over the last few months may have run its course, at least for the time being. They have also started to sell some of the new crop and it is estimated that 12% of the anticipated soybean crop has been sold.

Farmers in Argentina are looking at a challenging year in 2014 in the face of high temperatures, high water, high costs, and high taxes. During the month of December there were record high temperatures recorded across central Argentina and many areas went as long as three weeks without rain. Then in January and early February, the weather reversed course and heavy rains left many fields inundated with standing water.

Now that farmers are ready to start harvesting their crops, they face additional challenges to their profit margins due to high costs, high export taxes and high income taxes. It is estimated that their production costs increased approximately 10% in 2013/14 and when they sell their soybeans, they face an export tax of 35%. In addition, farmers must pay income taxes as high as 36%. When all their costs and taxes are accounted for, many farmers are left with very thin profit margins in the range of 5% to 20%. The higher margins are for those farmers with relatively good yields and the lower margins are those hit hard by the adverse weather.

One advantage farmers have in Argentina compared to their Brazilian counterparts are very low transportation costs due to the close proximity of the production fields to the export facilities centered on the city of Rosario. Eighty percent of the agricultural exports flow out of ports along the Parana River and three quarters of all the Argentine grain production is within a few hundred kilometers of the ports. Argentina has a good highway system leading to the ports and many farmers haul their own grain to the export facilities.

Less than 1% of the soybeans have been harvested thus far and farmers in Argentina are expected to harvest approximately 54 million tons of soybeans. The corn harvest is a little more advanced at 5% and the 2013/14 Argentine corn crop is estimated at approximately 23 million tons.