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September 9, 2019

Economics and Politics Favor Soy over Corn in Argentina in 2019/20

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The farmers in Argentina are facing an uncertain start to the 2019/20 growing season. The Argentine economy is in "meltdown" mode with sky-high inflation and interest rates, a devalued currency with the possibility of a default and an uncertain political future. If the economic situation was not bad enough, there is the distinct possibility that the ex-President Cristina Fernandez de Kirchner may be back in power as the new vice president.

Mrs. Kirchner was very unpopular with the farming community during her 2007-2015 presidency when she instituted export restrictions and export taxes on Argentina's commodity exports. The farmers are afraid that those policies will return if Peronist Alberto Fernandez is elected president on October 27th.

Over the last several years, farmers in Argentina have been increasing their corn acreage in order to better align their rotations and to take advantage of the elimination of export taxes on corn, but that trend may not continue in 2019/20.

A lower cost of production may be an incentive for Argentine farmers to plant more soybeans and less corn in 2019/20. The production costs for corn in Argentina is approximately $500 per hectare, which is 70% more than for soybeans because corn requires more investments in fertilizers and seeds.

The economics seem to favor soybeans as well as the potential political shift in Argentina. Farmers are concerned that a potential return to power of Mrs. Kirchner could also mean a return of her policies of higher export taxes and export restrictions especially for corn. When those policies were employed in the past, the result was very low domestic corn prices, which was the goal of the policy - hold down the price of corn which in turn will reduce feed cost, meat prices and domestic food inflation. As a result, farmers never knew what the price of corn would be when they were ready to sell their crop.

To avoid that situation in the future, farmers in Argentina may revert back to planting more soybeans at the expense of corn. Several years ago, farmers in Argentina were planting approximately 6 times more hectares of soybeans than corn but that was reduced to 3 times more hectares of soybeans during the 2018/19 growing season.