PRODUCTION:

Post forecasts 2015/16 soybean production area at 20.3 million hectares, a marginal decline from Post's 2014/15 production area estimate. Compared to the 2014/15 USDA official estimates, however, this represents a 2.5 percent increase. The leading cause for this slight drop in area is the growing preference for alternate crops in Argentina for 2015/16. Due to commodity prices, market opportunities, and agronomic requirements (i.e. crop rotation patterns), Argentine producers are gradually shifting production to alternate crops, such as sunflowerseed. This shift brings with it an opportunity cost that essentially reduces soybean area for the outyear. 2015/16 soybean production is forecast at 55.5 million metric tons (mmt). Yields are forecast in line with historic trends though lower than all-time high 2014/15 yields, which enjoyed almost perfect weather.

Farmers will continue to look to soybeans for their relatively-low production costs, high liquidity, relatively-stable international demand, and their function as an alternate store of value in the context of a devaluing currency. Soybeans are relatively cheaper to produce than most other row crops. Production costs in Argentina are forecast to remain high and inelastic to other global economic fundamentals, namely the significant drop in global crude and ag commodity prices. With a state-controlled petroleum industry, cost savings have not trickled down at the pump for the consumer or for the farmer in the field. With high carry-over stocks, farmers have appreciated being pursued by crushers for their soybeans. This apparently-guaranteed demand will be an additional factor for farmers in their planting decision. Finally, the ability to store soybeans in silo bags offers producers the possibility of holding onto their soybeans as an alternate store of value. Post cannot overstate the importance of this commodity-in-hand wealth for farmers. In an economy that controls foreign reserves and continues to overvalue the peso, land holdings and soybeans have proven perhaps to be the only viable alternatives for holding savings in country.

The geographic distribution of production is forecast to remain approximately the same for 2015/16. Industry sources have been predicting that "marginal" areas planted to soybeans would reduce, namely the northwestern region of the country. However, despite logistical costs, there are no indications that these areas will experience a reduction in area planted to soybeans. Land rents are forecast to decrease by an average of 10-15 percent for 2015/16, based on falling commodity prices. Land rents are a significant production cost factor for farmers, as approximately 60 percent of the area farmed in Argentina is rented. Unlike the beginning of the 2014/15 season, land owners by now have become aware of the "new normal" in soybean prices. Land rental agreements will continue to trend towards contracts tied to kilograms of soybeans per hectare as a payment as opposed to a fixed amount of dollars per hectare. Farmers and landlords alike recognize the need to share the risk and the reward. Overall, Post is forecasting a stable area to early-planted soybeans, as farmers marginally alter winter crop production, and a marginal loss of area to late-planted soybeans. Early-planted soybeans historically net higher yields. With this shift in planting seasons, 2015/16 national yields will be slightly lower than 2014/15 yields, which was significantly boosted by remarkable weather.

2015/16 financing will be tight for farmers. In general, farmers took 2014/15 financing options in pesos with high interest rates (30 percent plus)—as opposed to financing options in dollars with lower interest rates—betting on a currency devaluation. Farmers who own their own land will most likely exit the 2014/15 year in a break-even situation. Farmers who have rented land will exit 2014/15 under water. Because of this, industry contacts forecast that it will difficult for producers to obtain financing from banks and traditional funding sources. Agricultural input suppliers will gain market share for financing producers in 2015/16. Financing costs will be higher, but at least producers have alternate venues to obtain financing.

For the current year, 2014/15, Post maintains its estimate of soybean production at 57 mmt. Overall, the crop is in excellent condition. The rain and sunshine during the first few months of the year promise record soybean yields (almost 2.8 mt/ha) at the average level. There are isolated regions of crop loss, however. Parts of southwestern Buenos Aires province have experienced excessive heat, and parts of Santa Fe and Cordoba provinces have had too much rain, which has led to flooded fields. Most industry analysts now see the record yields handily offsetting the marginal losses from adverse weather.

There are no changes to production for 2012/13, with production estimated at 54 mmt.

CONSUMPTION:

More than three quarters of soybean production in Argentina is processed in-country and crushed for meal and oil. Argentina has the capacity to crush over 60 mmt of soybeans annually, and with such large infrastructure, investment, and lower tax incentives, the trend is for crush to increase, especially when production goes up. However, the increase is not as aggressive as it could be, as many producers will be holding more stocks in anticipation of a continuation of the current economic situation in Argentina. For 2015/16, Post forecasts soybean crush at 43 million tons, up 3 mmt from the official USDA 2014/15 estimate, due to a large carry-over supply. The majority of Argentina's oil and meal is exported, however, there is a small amount of domestic consumption, forecast for 2015/16 at 450,000 mt and 2,400 mt, respectively. Food use consumption of soybean oil at the retail level is slowly increasing as more soybean oil is being seen on grocery shelves. Soy oil is used to make biodiesel, of which production approximately two-thirds is exported and the rest is used domestically to meet the national biodiesel blend mandate of ten percent (although it is currently not met). Of note, Argentina has become eligible as of early 2015 to export biodiesel to the United States and have its exports count against the U.S. domestic renewable fuel standards obligations. Some analysts forecast that Argentine biodiesel exports to the United States can grow to as high as 400,000 mt.

2014/15 crush is maintained at 40 mmt. Crushers reported that sourcing beans during the Argentine between-harvest period has been a challenge, with sales particularly slow in the first quarter of 2015. On average across the country, analysts estimate that crushing plants have been operating significantly lower than capacity. Farmers either do not have any soybeans available to sell or else are loathe to sell in the current environment. In the latter case, the 2014/15 soybeans will not enter the books, albeit as exports or as crush, until 2015/16. As of late March 2015, a mere five percent of the 2014/15 soybean harvest has been sold.

Post has adjusted upwards the Feed Waste Domestic Consumption line for 2014/15 to 6 mmt and forecasts similarly high levels for 2015/16. Post is increasing this as an effort to comprehensively capture into the analysis those soybeans that do not always enter the official commercial stream. For instance, sector contacts believe that as many as 1.5 to 2 mmt soybeans are extruded or crushed in rural areas throughout the country. Nearby livestock feeders and food manufacturers consume the locally-crushed soybean oil and meal. Significant amounts of soybeans appear to leak out of the official system in other manners as well, and Post hereby captures them in this analysis.

TRADE:

Argentina crushes approximately three-quarters of its soybeans in country. Nearly all of the remaining whole soybeans are exported to China. In 2014/15 nearly 80 percent of all whole soybeans were shipped to China, approximately 6.1 mmt. Other important markets for whole beans include Egpyt, Bangladesh and Iran. Argentina dominates the world market as the largest exporter of soybean oil. In 2014/15, the largest export markets for Argentine soybean oil were China, Malaysia, South Korea and Morocco. The largest soybean meal markets for Argentina in 2014/15 were the European Union (approximately a third of all meal exports), Vietnam, Indonesia, and Iran.

Soybean exports for 2015/16 are forecast to reach 10 mmt, based on a higher production forecast and high carry over stocks from 2014/15. For 2015/16, crushers and traders anticipate farmers selling between the months of May and July, at which point all farmers will cease sales until December 2015. It is uncertain how much farmers will sell in that three-month window, but what is certain is that they will sell only what is necessary to pay off loans and obtain the liquidity necessary to finance 2015/16 production costs. Farmers are hedging that as a new government will take power in December 2015, a currency devaluation and export policy changes will immediately occur. As such, the market anticipates farmers unloading large amounts of soybeans in December 2015-January 2016, which would coincide and compete with U.S. soybean exports. Since crush is forecast to increase to 43 mmt, both soybean oil and soybean meal exports are forecast up for 2015/16 to 5.2 mmt and 32 mmt, respectively. Contacts forecast that soybean meal exports to the European Union will be a challenge for 2015/16 due to a currency exchange situation in which the market has devalued the euro but not the Argentine peso (the peso does not float but is fixed by government controls).

For current year 2014/15, whole bean exports disappointed the market. Beans were definitely available for export, but because of the political-economic situation, soybean exports are estimated at only 8.3 mmt, a far cry from traders' mid-year projections of 10 mmt. In general farmers had little desire to sell their on-farm stocks. Other contributing factors were (1) a low draft at the port of Necochea in southern Buenos Aires province and (2) protein "wash outs" in some of the soybeans due to excessive rains.

STOCKS:

It is estimated that there is over 52 mmt of fixed storage capacity in Argentina for grains. This does not include private on-farm silos or silo bags. Silo bags give the producer the ability to store as much or as little grain as necessary and it can vary greatly from year-to-year. Each bag can store between 60 to 250 tons of grain, depending on the size. Essentially, there is no limit to storage capacity when including silo bags.

The Ministry of Agriculture publishes information on stocks on their "Dirección de Mercados Agrícolas" website. However, these numbers estimate total stocks based on the day of the estimate, so they include carry-in, new harvest and discount carry-in that is already sold, etc. A better estimate of stocks is through the Ministry of Agriculture's monthly reports published by "Sistema Integrado de Información Agropecuaria." Here, the estimate is taken on a marketing year basis, the same way USDA calculates stocks.

Beginning stocks (mt) for 2013/14:

Ministry of Agriculture

USDA Official

Soybeans

4,430,000

10,892,000

Estimated beginning stocks for (mt) for 2014/15:

Ministry of Agriculture

USDA Official

Soybeans

5,330,000

18,644,000

Over the last few years, producers have had more and more incentive to hold onto farm stocks year after year as physical assets instead of selling the commodity and depositing the money in a bank. After the financial crisis in 2001, when there was a freeze on bank accounts and people were not allowed to withdraw from their own accounts, producers began investing their money in anything but untrustworthy bank accounts. Today, they purchase new land, if any is available, or perhaps for a shorter term, hold onto their grain in large silo bags. Like last year, because of several converging dynamics in the local economy, many will be hanging onto more beans until a profit can be made, selling only when necessary to cover costs. It does not make sense to sell a large quantity when unofficial inflation is estimated at over 40 percent and the peso is unstable. Proof of this trend is evidenced by a much slower than average pace of soybean sales to the industry this year (currently estimated at five percent of total production). Producers naturally sell other commodities, such as wheat and corn, first to pay their costs for the next crop year. Furthermore, soybeans are easier to store for longer periods of time and easier to sell for export since there are no export quotas in place. Silo bags can store soybeans for approximately three years, and one can assume a loss of 2-3 percent when silo bags are utilized. For more detail on this.

In 2014/15, there have been several developments surrounding silo bags in Argentina. Between September 2014 and February 2015 there have been some 50 incidents reported of silo bag vandalism, wherein silo bags are deliberately cut open. These actions frequently force farmers to sell their soybeans and may send a threatening message to farmers. On March 2, 2015, Argentina's tax agency AFIP published General Resolutions 3744 and 3745 in the Official Bulletin. Measure 3745 creates new reporting requirements for grain silo bag manufacturers and vendors, enabling AFIP to keep a registry of how many silo bags the industry is manufacturing and selling, and more importantly, who is buying and how much. Measure 3744 establishes a separate registry process for the marketing of select agricultural commodities (grains, oilseeds, and dried legumes), excluding those products destined to be used as seed. In publishing these new measures, AFIP decried producer's speculatory use of silo bags that disrupts the market and keeps much-needed funds from entering the country.

There is a lot of debate on the exact size of soybean stocks out there. Some producers will say there is nothing, and when driving through the heart of soybean country, there are very few silo bags, therefore validating this theory. Most post contacts do not agree with the official USDA soybean stocks for Argentina, estimated at 13.9 mmt for 2013/14 and 18.6 mmt for 2014/15. They indicate that these estimates are too high. The industry consensus is that Argentina held 3-4 mmt in stocks exiting 2013/14 and approximately 7-8 mmt exiting the 2014/15 year. However, when one analyzes production, exports and crush, which are generally known and accepted statistics, it is difficult to arrive at stocks much lower than the official USDA estimates.

For 2015/16, Post anticipates that the stocks bubble will begin to break due to a conflation of factors: currency devaluation pressure, farmer indebtedness, and a surging industry demand. Producers, crushers, and the government can only play the game of chicken so long before someone will have to cave.

POLICY:

Biotechnology

Virtually all soybeans produced in Argentine are derived from modern agricultural biotechnology. While several new soybean events have been approved in recent years, commercial issues and an existing seed law that does not protect intellectual property rights (IPR) are the major factors hindering commercial production of the new varieties. Argentine law allows producers to save seeds for use on their own farms, but prohibits the producers from selling the seeds. This essentially means that producers only have to pay royalties on the initial purchase of seeds but not on subsequent crop years.

Without an update to the seed law, producers and seed companies have produced a draft agreement that will allow producers to purchase new varieties of seeds and pay royalties to the seed companies.

Over the past several years, the government has been working on drafting a new seed law that will protect IPR. Although it has made it to Congress, it is back at the Ministry of Agriculture for discussion. Contacts indicate that the draft law is unlikely to move forward until after presidential elections in 2015.

Export licenses and taxes

The ex National Agricultural Trade Control Agency (ex-ONCCA) regulates agricultural exports in Argentina and requires exporters to solicit export registrations (ROEs). Approval of ROEs is generally automatic for oilseeds and there are two different embarkation periods, either 45 or 180 days, depending on when the exporter pays the required export tax. If paid within five days of soliciting the ROE, the exporter is granted an embarkation period of 180 days. If paid at the time of export, the exporter is granted a 45 day embarkation period. Export taxes on oilseeds are as follows:

Soybeans 35%

Soybean Oil 32%

Soybean Meal 32%

Sunflowerseed 32%

Sunflowerseed Oil 30%

Sunflowerseed Meal 30%

Peanuts 23.5%

Peanut Oil 5%

High export taxes on agricultural products have been an important source of income for the Government of Argentina (GOA) for many years. In fact, soybean complex export taxes are the GOA's largest source of U.S. dollars and a major contributor to the Central Bank reserves, which currently hover around $30 billion. High inflation, a gradual but insufficient devaluation of the peso, and currency controls have put extra pressure on the economy and the expected influx of dollars from soybean complex exports play a major role in replenishing foreign reserves and funding government initiatives.

The GOA maintains tight controls on the exchange rate and on foreign currencies entering and exiting the market. An essential ingredient for the GOA to control the exchange rate is the retention of sufficient foreign currency reserves on hand . For 2014/15, the GOA has kept the official exchange rate relatively tame, increasing it from 8 pesos per dollar to 8.84 pesos per dollar over the course of 2014/15. The unofficial exchange rate, or the "blue" dollar, has experienced much greater volatility and may serve as a shadow exchange rate if the Argentine peso were allowed to float in the international currency market.

The agricultural sector largely expected the official peso to devalue by some 30 percent in the first quarter of 2015. So far, there has been no move to devalue, and the GOA indicates that it has no intention to devalue. With official GOA statistics pegging the 2014 inflation rate at 25 percent (and private sector inflation estimates ranging from 40 to 45 percent), Argentines have experienced a remarkable decrease in their purchasing power. Furthermore, the Argentine peso is experiencing the perfect storm: a strengthening dollar (weaking the peso), a sizeable devaluation of the Brazilian real (Argentina's neighbor and competitor in the global marketplace), and a marginal devaluation of the euro (weakening the purchasing power of one of Argentina's most important export markets for soybean meal and oil). It is uncertain how much longer the Argentine peso can weather the pressure to devalue. It is not a question of if but a question of when.

With the above inflation rates, a peso that the market deems overvalued by at least 30 percent, and an export tax of over 30 percent, the farmer's perspective and actions make a lot of sense. The "dolar soja" is another term frequently heard in Argentina, it is essentially the rate paid to the producer for their product (the official rate minus the export tax). On soybeans, the producer would receive an average of 6.2 pesos/per dollar. This is less than half of what the "blue rate" is currently at. It makes sense for producers to want to hold onto their physical soybeans as a form of savings and sell the minimum amount possible to pay debt, especially since pesos today do not have the same value as pesos in one month or six months. Farmers did not see the commodity price bust in mid-2014, in which many commodity prices dropped by 40 percent nominally. On the face of it, Argentine producers lost on their bet to store and hold their product. Time will tell, however, as the uncertainties of currency devaluation and an uptick in prices may vindicate their moves. Storing product on-farm is not a new trend. For at least the past five years, more and more producers are storing grains in large plastic silo bags vs. in silos at local cooperative elevators. With access to silo bags, there really is no maximum limit to on-farm storage capacity. Producers have the tools to fill and empty these portable bags and will do so as long as they see soybeans and other grains as a sure form of savings.

Speculations on Policy Changes and Their Impacts on 2015/16

With a change in political administration arriving in December 2015, there is every likelihood that the new government will change some agricultural and export policies. These changes could significantly impact planting, crushing and exporting decisions in the outyear. Per USDA guidelines, this report has forecast 2015/16 production, consumption and trade on current policies, hence not incorporating speculations inherent to political changes. (Other market-driven—i.e. non-political—speculations have been built into this report and indicated as such.) Nevertheless, it is important to highlight some of these speculated policy changes and the likely impacts these changes could bear. The three leading presidential candidates have hinted at, if not outright endorsed, some or all of these policies:

  • Repealing ROEs: by repealing the requirement for export registrations—the need to obtain export licenses—the industry expects that farmers will immediately increase area planted to wheat and area planted to corn. By repealing ROEs, corn and wheat become economically viable crops for farmers. In addition, farmers have been anxious to rotate out of soybeans to improve their soil characteristics but feel boxed into soybean production because no other crop makes economic sense in Argentina. An increase in wheat production will reduce area planted to early-soybeans and slightly increase area for late-soybeans, with the overall impact of reducing net soybean yields. An increase in corn production will reduce soybean area altogether.
  • Repealing/Reducing Export Taxes: repealing or reducing export taxes will intensify the impact of repealing ROEs, i.e. less soybean area and production and more corn and wheat area/production. Many flavors may characterize this policy change, such as an immediate export tax elimination for wheat, an immediate reduction for corn, and a possible reduction or phasing out for soybeans. Removing export taxes on soybeans is the most polemic change, as all analysts recognize the important revenue stream soybean exports bring in for the government. Any adjustment to the differential export taxes on soybeans and derivative products will also have an immediate impact on crushing.
  • Devaluing the Argentine Peso: devaluing the peso will incentivize farmers to sell their soybeans, loosening up supply in the market, reducing stocks, exacerbating the slide of commodity prices (ceteris paribus). Financing debt will become cheaper for farmers and agricultural imputs will also become cheaper. Instead of minimal investments in 2015/16 production, farmers may invest more and choose better technology lines.
  • Loosening Controls on Foreign Reserve Flows: by making dollars more accessible to the market, parallel exchange rates will phase out and, theoretically, the drive to store beans on the farm will diminish.
  • Allowing Crushers to Process Foreign Soybeans: by allowing Argentine crushing plants to process foreign beans, crush may marginally increase over night. Crushers based in Rosario and in other strategic ports may begin to process Paraguayan soybeans again. This impact is expected to be only marginal, since Paraguay's crushing capacity is now well-established and the effects of the original ban on foreign beans largely nil.
  • Eliminating the Subsidy for Sunflowerseed Oil: by removing measures that keep certain food products artificially cheap for the masses at the retail level, food prices will surely increase. Subsequently, the demand for sunflowerseed oil may decrease and the demand for soybean oil (a cheaper though less traditional alternative) may increase.


Oilseed, Soybean (Local)

2013/2014

2014/2015

2015/2016

Market Begin Year

Apr 2013

Apr 2014

Apr 2015

Argentina

USDA Official

New post

USDA Official

New post

USDA Official

New post

Area Planted

19,800

20,300

19,800

20,800

0

20,300

Area Harvested

19,800

20,300

19,800

20,500

0

20,300

Beginning Stocks

8,620

8,620

13,892

10,892

0

13,594

Production

54,000

54,000

56,000

57,000

0

55,500

MY Imports

2

2

2

2

0

2

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

62,622

62,622

69,894

67,894

0

69,096

MY Exports

7,510

7,510

8,300

8,300

0

10,000

MY Exp. to EU

50

50

50

50

0

50

Crush

38,220

38,220

39,850

40,000

0

43,000

Food Use Dom. Cons.

0

0

0

0

0

0

Feed Waste Dom. Cons.

3,000

6,000

3,100

6,000

0

6,000

Total Dom. Cons.

41,220

44,220

42,950

46,000

0

49,000

Ending Stocks

13,892

10,892

18,644

13,594

0

10,096

Total Distribution

62,622

62,622

69,894

67,894

0

69,096

1000 HA, 1000 MT

Oil, Soybean (Local)

2013/2014

2014/2015

2015/2016

Market Begin Year

Apr 2013

Apr 2014

Apr 2015

Argentina

USDA Official

New post

USDA Official

New post

USDA Official

New post

Crush

38,220

41,000

39,850

40,000

0

43,000

Beginning Stocks

232

232

308

308

0

268

Production

7,150

7,150

7,610

7,600

0

8,200

MY Imports

20

20

10

0

0

0

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

7,402

7,402

7,928

7,908

0

8,468

MY Exports

4,260

4,260

4,640

4,640

0

5,200

MY Exp. to EU

50

50

50

50

0

100

Industrial Dom. Cons.

2,450

2,450

2,550

2,550

0

2,700

Food Use Dom. Cons.

384

384

400

450

0

450

Feed Waste Dom. Cons.

0

0

0

0

0

0

Total Dom. Cons.

2,834

2,834

2,950

3,000

0

3,150

Ending Stocks

308

308

338

268

0

118

Total Distribution

7,402

7,402

7,928

7,908

0

8,468

1000 MT, PERCENT

Meal, Soybean (Local)

2013/2014

2014/2015

2015/2016

Market Begin Year

Apr 2013

Apr 2014

Apr 2015

Argentina

USDA Official

New post

USDA Official

New post

USDA Official

New post

Crush

38,220

38,220

39,850

40,000

0

43,000

Extr. Rate, 999.9999

1

1

1

1

0

1

Beginning Stocks

4,911

4,911

4,851

4,851

0

3,751

Production

29,400

29,400

30,985

31,100

0

33,500

MY Imports

0

0

0

0

0

0

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

34,311

34,311

35,836

35,951

0

37,251

MY Exports

27,460

27,460

29,780

30,000

0

32,000

MY Exp. to EU

10,250

10,250

10,800

10,800

0

11,000

Industrial Dom. Cons.

0

0

0

0

0

0

Food Use Dom. Cons.

0

0

0

0

0

0

Feed Waste Dom. Cons.

2,000

2,000

2,201

2,200

0

2,400

Total Dom. Cons.

2,000

2,000

2,201

2,200

0

2,400

Ending Stocks

4,851

4,851

3,855

3,751

0

2,851

Total Distribution

34,311

34,311

35,836

35,951

0

37,251

1000 MT, PERCENT