November 3, 2015

Opposition Candidate in Strong Position for Argentine Runoff

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

The opposition candidate, Mauricio Macri, appears to be in good position going into the runoff election in Argentina scheduled for November 22. The winner of the runoff election will assume the presidency on December 10th.

Mr. Macri's strong showing has encouraged more talk about the potential impact of his election on the agricultural sector. His campaign promises include: the elimination of currency controls which would lead to a devaluation of the Argentine peso, complete elimination of export taxes on corn and wheat, a small reduction (5% in the first year) in the soybean export tax, and a promise to stop interfering in the export market. All this sounds good on paper, but as I have said many time, it may be hard to implement.

Collectively, all of these proposals could be a "game changer" long-term for Argentine agriculture, if they are implemented. A sudden devaluation of the currency could have the most immediate impact on the ag markets. A devaluation would be a shock to the Argentine economy, but it would be good news for farmers because it would result in a price increase for their grain.

It is estimated that Argentine farmers have approximately 10 million tons of old-crop soybeans stored on farm with many of those soybeans in silo bags. The actual amount of old-crop soybeans in Argentina is very hard to ascertain. If there is a devaluation, that would represent a price increase for Argentine farmers, which I think would stimulate many farmers to let go of their old-crop soybeans.

If you remember, early in 2015 the Argentine government threatened severe consequences if farmers did not sell all the soybeans they had stored on-farm. The government did take some enforcement action early last January, but generally their enforcement actions fell short of what was threatened. As a result, most of those soybeans are still in the hands of the farmers and they need to be sold before they go out of condition since some of those soybeans have been in storage for up to two years.

If elected, Macri would take office on December 10th and I don't know if he could get much done by the end of December concerning the lifting of currency controls. Therefore, a devaluation of the Argentine currency and the subsequent sales of old-crop soybeans in Argentina probably would not happen until after the first of the year, but that is just a guess.

If Macri becomes the next president, another potential impact on agriculture would be an increase in Argentine corn acreage. If there would be a devaluation of let's say 30% and if the 20% export tax on corn was eliminated, the prices paid to the Argentine farmers for their corn could potentially double overnight. If that would happen, I think farmers would jump at the opportunity to plant more corn. Those potential changes though would be more long-term in nature. I don't know if they would happen soon enough to impact the corn acreage for this growing season, but there have been reports of farmers contacting their seed suppliers concerning more corn seed, so it might be possible that it could impact this planting season.

Of course, there is no guarantee that Macri will win the runoff election. The strong showing of Mr. Macri (the opposition) has already convinced Mr. Scioli (the ruling party) to change some of his rhetoric concerning potential changes in agricultural policy. He said late last week that he is considering making some of the same changes as Mr. Macri, but after years of acrimony between the agricultural community and the government, most farmer will take a wait and see attitude toward his sudden change in heart. So for now, there remains a lot of uncertainty in Argentina.