some buy gold, others just hold their beans

Talk grows of rise to Argentine soy export tax
29th January 2014



Speculation is growing that Argentina will raise its export taxes on soybeans to raise much-needed state revenues, denting farmers' efforts to protect their own finances from the collapse in the peso.

Rumours have started that the country is poised to lift its soybean export tax from 35% to 40%, although there has been no official indication of such a move.

Such a tax rise would echo the reaction to the time of the country's last severe economic crisis, 12 years ago, when the government imposed the export duty - initially at 10% for oilseeds, on top of a domestic tax of 3.5%, with soyoil shipments charged at 4.3% and soymeal at 5%.

"I would not be surprised if they tried something similar once again," said Michael Cordonnier, the influential crop scout with strong South American sources, adding that such an increase would "certainly launch protests against the action" by farmers, who have a history of anti-government demonstrations.

'Windfall profits'

Argentina's government could justify such an action "based on the devaluation of the peso, which they would consider 'windfall profits' for farmers", Dr Cordonnier said.

The devaluation of the peso, which plunged 15% to a record low on Thursday, has rewarded farmers' of withholding crops, which are denominated in dollars, as a hedge.

Argentine farmers are estimated to be holding about 7m-8.4m tonnes of soybeans, compared with 1.6m tonnes a year ago.

Indeed, the peso's plunge has sparked debate in markets about how farmers will react – whether the peso's decline will encourage them to sell up and take profits, in peso terms, on their holdings or to hold tight for fear of further devaluation.

Tax rise vs devaluation threat

"You might think that even the threat of a rise in export taxes would encourage farmers to sell, and that the government might dangle that in front of farmers as a political move to try to free up these [crop] inventories," a UK-based South American economist told Agrimoney.com.

"But given the way the peso has behaved, I would expect farmers to hold on for now. A 5% rise in export taxes is nothing compared with what they might lose from further devaluation."

At New York-based broker Jefferies Bache, Anne Frick noted that farmer crop hoarding in 2002, amid severe financial fears, had "backfired" when the export levies were imposed in March of that year.

"Eventually, farmers did sell their soybeans in 2002, even if reluctantly."

Official vs blue

She added the devaluation of the peso "might have some impact on Argentine farmer selling but only if it were to narrow the official versus black market exchange rate".

The Argentine government has imposed an official exchange rate against the dollar well above black market rates. Earlier last week, the official rate of 6.9 pesos to $1, compared with a black market – or so-called "blue market" – rate of nearly 12 pesos to $1.

Moves by Argentina to loosen currency controls "might help with that".

However, hoarding crops protects growers from inflation which many economists estimate privately at about 28%, well above the 11% rate proposed by official data, whose inaccuracy has earned Argentina condemnation from the International Monetary Fund.'

'They will not sell any more'

"Strong holding by Argentine farmers this spring could support prices relative to where they otherwise would have been," Ms Frick said.

Dr Cordonnier said that farmers "still have an estimated 8m tonnes of last year's soybean crop in storage and they will not sell any more of those soybeans any time soon".

Argentina's wide use of silo bags reduces the need for sales merely to clear storage space for the next harvest, due to start around March.

"It costs approximately $5.00 per tonne to put the soybeans into the bags and to extract the soybeans at a later date.

"If the soybeans are put in the bag at 13.5% moisture or less, they can remain in the bags indefinitely, or at least 12 months or longer."

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