Soybean-Hoarding Farmers Make Argentina Pay in Peso Bond Market

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With Argentina mired in default and plagued by a swelling deficit, the nation’s record soybean harvest couldn’t come at a better time.

There’s just one problem: Farmers won’t let the government get its hands on it.

Growers in the South American country, the world’s biggest producer of the oilseed after the U.S. and Brazil, are holding onto an estimated $2 billion of soybeans on a bet the winner of presidential elections in October will devalue the peso, boosting the value of their exports. They’ve cut shipments by 30 percent this year versus the same period in 2014.

The move is causing soybean tax revenue to sink to an eight-year low, forcing President Cristina Fernandez de Kirchner’s government to sell debt in the local market at yields as high as 27 percent to finance a budget gap that will be the biggest since 2001. Argentina’s ability to obtain financing abroad has been curtailed by U.S. courts since June, when its failure to reach a settlement with disgruntled creditors pushed it into default for the second time in 12 years.

“The government can’t make the economy grow because it doesn’t have dollars from farmers and can’t sell debt in New York,” Mariano Lamothe, the head economist at abeceb.com, said by telephone from Buenos Aires.

Bond Yields

The Treasury issued 4.7 billion pesos ($530 million) of bonds last week, including notes due March 2016 to yield 27.06 percent. That was less than a month after selling 5 billion pesos of debt in what was its first offering in a year. As part of that auction, it issued 12-month notes to yield 26.2 percent.

In its previous bond sale in pesos, the Treasury paid a 21.88 percent yield in September.

Economy Ministry spokeswoman Jesica Rey didn’t respond to an e-mail seeking comment on its debt sales and soybean tax revenue.

The peso was little changed Tuesday at 8.8674 per dollar as of 10:01 a.m. in New York. It has dropped 4.3 percent in the past six months.

Farmers will likely continue to hoard their soybeans for the rest of the year, which will deprive the government of dollars, said Eduardo Hecker, a former securities regulator who now heads consultancy DEL. They’re also betting a new government will cut an export tax that’s as high as 35 percent and that they say makes their operations unprofitable, he said.

Farmers have harvested just a third of their estimated 58 million metric tons of soybean crops. It’s a big issue because soybean export taxes support about a third of government spending.

Budget Gap

“It’s clear that the farmers will delay most of their sales,” Hecker said by telephone from Buenos Aires. “They’ll wait until the next administration for a better exchange rate or a cut in the tax.”

Hecker projects Argentina’s budget shortfall will widen to 6 percent in 2015.

Opposition presidential candidates Mauricio Macri and Sergio Massa have said they’ll reduce export taxes to promote investment. Ricardo Delgado Morales, spokesman for Daniel Scioli, the candidate closest to Fernandez’s government, had no immediate comment, he said in a phone interview.

Tension between Fernandez and the agriculture industry dates to at least her first term. In 2008, farmers led months of anti-government demonstrations that eventually forced Fernandez to abandon plans to increase export taxes.

“Farmers are tired of financing a government which has only sowed hate against farmers,” Gabriel De Raedemaker, vice president of the Argentine Rural Confederation, said from Oliva, Cordoba province. “Waiting for a wind of change is our best investment.”

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