South Americans Hold Off on Bean Sales

South American Crop Watch

Sales slow despite recent devaluation.

Published on: February 14, 2014

I got an e-mail from Iowa the other day, asking about Argentine producers holding off on selling beans. It's true, I said. But it's also true in Brazil. Mato Grosso farmers are about 11 percent behind last year in selling their 2013-14 beans.

One reason for that is they are better-capitalized than ever at the moment, and part of it may be old-fashioned optimism that prices will just continue to rise into the future.

But, in the spirit of due diligence, I picked up the phone for some background from an economist at ACSoja, an association representing all the steps in the Argentine soybean chain, from producers to processors to exporters. She said only about 8% of the 2013-14 Argentine soybean crop had been sold by the end of last month, versus some 19% of it at the same point of last season (an 11% slowdown, just like producers in Mato Grosso, Brazil.)

For Argentina, it's the slowest rate of forward bean sales since 2008-09.

The slow pace of forward sales is a bit odd right after last month's 16% devaluation of the Argentine peso, which overnight made a tonne of Argentine soybeans worth 2,400 pesos suddenly worth 2,820 pesos. And it's odder still when prospects for falling world soybean prices look this strong.

The ACSoja economist told me Argentine 2013-14 bean sales would gain pace soon, as producers sell product in order to cover their 2014-15 cropping costs.

Old beans
But the real problem is retention of old beans. Those Argentine producers big enough to wait a while are doing just that—sitting on a government-estimated eight million tonnes of old soybeans. Producer estimates are more like 5.5 million tonnes.

Either way, it's a lot of soy waiting for another devaluation, yet-higher prices--- something—to be sold.

There's pressure on both sides - government and farmers - to act. Pushing producers along is 2014-15 cropping costs, though they don't appear to be sweating too much, with new bean future sales so slow.

One local expert points out that a devaluation of the peso of more like 35% would be needed to truly reflect the weakness of the local currency. And remember, the cost of most ag inputs reflects, as soybeans themselves do, a dollar value—no matter the local currency one is using to buy them. So a 16% boost in effective soybean prices as a result of the devaluation only goes about half way to making inputs purchases for the 2014-15 season affordable.

And on the other side is the Argentine administration, which charges a 35% "retention" tax on export beans and co-products. But it can't charge that tax, which funds state infrastructure and national social security, until those beans are sold.