Idle Argentine Soy-Crushers Ramp Up as Macri Ending Crop Logjam

  • World's biggest exporter of soybean oil, meal poised to expand
  • New president cuts export taxes, lifts ban on importing beans

For much of the past decade, soybean processors in Argentina including Bunge Ltd. and Cargill Inc. couldn’t get enough of the crop to crush, as farmers clashed with the government over agricultural policies.

Now, with newly elected President Mauricio Macri cutting taxes and ending an import ban, processors are ready to expand Argentina’s global dominance in exports of soy-based animal feed and cooking oil. The boost couldn’t come at a better time -- farmers in the world’s third-largest soybean-growing country are eager to sell $10 billion of crops they hoarded in their battle with the prior administration. And exports stand to gain from a government devaluation of the local currency against the dollar.

“New policies are sending farmers and exporters to a perfect world,” said Ramiro Farias, an economist at the Cordoba Grains Exchange in Argentina who predicts domestic soybean processors -- who left more than a third of their capacity idle last year -- will increase output to all-time highs over the next two years.

Argentina has long sought to be more of a processor of soybeans than just a grower, trying to exploit rising world demand for soy-based products that fetch higher prices than the raw material. The industry spent $3 billion expanding facilities to chase that goal, then saw its facilities underused as President Christina Fernandez de Kirchner increased export taxes and halted imports to force domestic farmers to sell.

Record January

As of mid-December, when Macri took office, total overseas shipments of oilseeds and grain for 2015 totaled $17.6 billion, the lowest for that period since 2009, according to CIARA-CEC, a Buenos Aires-based consortium of Argentine exporters. In January, export sales more than tripled from the same month a year earlier to a record $2.7 billion.

While the country crushed a record 38.6 million metric tons last year, that was well below total capacity of 62 million tons, industry data show. Most of the idle facilities were at plants expanded by Bunge, Cargill and Louis Dreyfus Commodities BV, which account for 26 million tons. Spokesmen for the companies declined to comment for this story.

With the new government policies in place, processing may jump 8 percent to 42 million tons this year and expand 10 percent further in 2017, according to Farias, the Cordoba exchange economist.

Over-Expanding

Crushing soybeans extracts vegetable oil used mostly for cooking and biofuel, while the leftover meal is fed to livestock. Since 2003, the industry invested in new plants alongside the Parana river, with easy access to farms and coastal export terminals.

But the processors over-expanded, and the business was hurt by 30 percent inflation, currency controls and changing agriculture policies under Kirchner -- including increased export taxes. Farmers protested in sometimes violent clashes with the government and began holding larger soybean inventories rather than sell them for reduced income. In 2008, Kirchner banned soybean imports in a bid to force domestic farmers to sell. Before the ban that year, Argentina imported 2.9 million tons from neighboring growers including Paraguay and Brazil.

Top Soybean Growers
Top Soybean Growers

In mid-December, Macri cut export taxes on soybeans and devalued the peso in one day by 30 percent, the most since 2002. On Jan. 18, he said processors can import soybeans tax free if the products are sold overseas. Agriculture Minister Ricardo Buryaile estimates that change would lead to at least 2 million tons imported from Paraguay alone.

“In the short term, local farmers will complain for the competition, but in the long term, when the industry achieves better profits and is able to pay more to local farmers, they will benefit,” said Carlos Blosom, the general manager at Cresud Sacifya, a Buenos Aires-based soybean grower with more than 230,000 hectares (568,000 acres) of land in Argentina, Brazil, Bolivia and Paraguay.

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